Proposed fee on health-insurance plans can’t cover costs of a state-funded exchange
Legislation being advanced by state Rep. Robyn Gabel, D-Chicago, would attempt to cover costs by charging a fee on every health-insurance plan sold through the state-funded health insurance exchange. This funding mechanism is likely to be insufficient. In fact, the new state tax on insurance plans may need to be three times the amount currently under consideration to truly cover administrative costs.
At a time when most lawmakers have distanced themselves from the president’s health-insurance overhaul, some members of the Illinois General Assembly just doubled-down on the Affordable Care Act.
On Dec. 1, members of the Illinois House Human Services Committee approved legislation to establish a state-funded health insurance exchange. The vote result came out on party lines – Democrats voting “yes” and Republicans voting “no.”
Someone is going to have to pay for a new state bureaucracy to run the new ObamaCare exchange in Illinois should it become law. The legislation being advanced by state Rep. Robyn Gabel, D-Chicago, would attempt to cover costs by charging a fee on every health-insurance plan sold through the exchange. That the fee serves to further increase the cost of coverage with no discernible benefit to the patient has escaped legislative notice.
This funding mechanism is likely to be insufficient. In fact, the new state tax on insurance plans may actually need to be three times the amount currently under consideration to truly cover administrative costs.
The fee assessment under consideration could be as high as 3.5 percent of total premiums. But based on today’s ObamaCare enrollment numbers and the resources currently being spent to advertise and enroll individuals, an assessment of more than 12 percent would be needed if the state-funded exchange were in operation today.
In 2011, a report conducted on behalf of Illinois estimated the costs of establishing a state-based health insurance exchange could range between $32 million and $89 million per year, depending on enrollment levels and assuming bare-bones marketing and enrollment-assistance spending. That money would go to a new state bureaucracy, as well as all future exchange costs, such as salaries, pensions, and IT systems and upgrades.
According to the state’s original budget estimates for marketing and Navigators – those individuals paid to assist and enroll individuals in the exchange – an exchange with 292,000 members would require an assessment of almost 4.6 percent; well above the 3.5 percent limit contained in the current legislative proposal.
Even this benchmark is problematic, as Illinois only enrolled 217,000 people last year, not 292,000 enrollees as budgeted. Fewer enrollments equals lower revenues, which could open up a gap in funding.
If the state were to move forward with the current marketing and Navigator budgets, which are funded through federal grants but would become the responsibility of the state should lawmakers establish a state-funded health insurance exchange, the required assessment would be above 12 percent.
For example, the state’s current $26 million contract with FleishmanHillard is at least $20 million higher than the original marketing and advertising budget estimate, which ranged from $2 million to $6 million.
The federal government doled out $36 million to Illinois for Navigators last year. But the state’s original estimate budgeted $1.5 million to $2.6 million per year for this activity. That’s another $33 million over what was originally estimated.
When pressed in the committee hearing, Rep. Gabel claimed that marketing costs could be cut if revenue to fund the exchange fell short, saying: “There may be some advocates that aren’t thrilled about this but, a big section of the money will go to marketing. And so there would just be a little less marketing.”
But what she failed to explain is that, if she wants to limit the assessment to 3.5 percent based on the current enrollment, she already needs to cut the current spending by tens of millions of dollars even before she gets started.
And less marketing could lead to fewer enrollments and lower assessment revenues, starting a death spiral for the finances of the exchange.
Gabel left the door open for rate hikes in the future, saying: “If it comes that we don’t have the funds to [pay for the exchange], we can change … we can do a new bill.”
The questions raised should cause great concern to those lawmakers who might be thinking of supporting this misguided proposal. Not only does the current proposal lack a solid funding plan, it will likely result in yet another fiscal black eye for Illinois.