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Correction: Health Overhaul-Exchange Solvency story

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PROVIDENCE, Rhode Island — In a story Nov. 23 about the financial health of state-based insurance exchanges, The Associated Press reported erroneously on the status of a lawsuit filed by the American Council of Life Insurers over the funding of the District of Columbia's health exchange. The suit isn't pending; it was dismissed earlier this month.

A corrected version of the story is below:

Health exchanges' finances face test in 2nd year

Financial health of insurance marketplaces to be tested in 2nd year; must be self-sustaining

By ERIKA NIEDOWSKI

Associated Press

PROVIDENCE, Rhode Island — The federal government shelled out billions of dollars to get health insurance marketplaces going in the 14 states that opted to run their own. Now they must act like true marketplaces and start paying for themselves.

Under President Barack Obama's Affordable Care Act, state-run health insurance exchanges need to be financially self-sustaining starting in January. Some appear to be on that path, while others have shaky funding models or even none at all.

Some states, prohibited from using state money, are imposing fees on plans sold on the marketplaces. Others are spreading costs more widely — which, in one instance, drew a federal lawsuit.

Rhode Island received high marks for the smooth rollout of HealthSource RI amid last year's stumbles by the federal government, and the agency director says the state's health care reform "revolution" has begun. But the state does not have a way to pay for the exchange's long-term operations, and some lawmakers in the state General Assembly have suggested shifting to the federal exchange.

The cost to operate Rhode Island's exchange is estimated at $17 million a year, although an earlier estimate pegged the cost at $24 million. Republican state Rep. Patricia Morgan introduced a bill last session to transfer its operations to the federal government, but the legislation was held for further study.

"Think of what we can do with $24 million," she said.

Some states have decided to tap existing revenue.

New York is relying on two agencies' general revenue, while Maryland is using money from an existing 2 percent tax on insurance plans. Republican Delegate Anthony O'Donnell, a critic of Maryland's decision to create its own exchange, said he continues to question its sustainability. He said last week that he is concerned "about the entire structure and that it may collapse of its own weight."

PHOTO: FILE - In this March 31, 2014 file photo, Katherine Smith, a customer engagement specialist in the control center for HealthSource RI in Providence, R.I., signals for a coach to assist her signing up a caller for health insurance. Rhode Island got high marks for a smooth rollout of its health insurance marketplace amid last year’s stumbles by the federal government, but the future of HealthSource RI is far from certain. Rhode Island has not identified a way to pay for it, and under the Affordable Care Act, state exchanges are supposed to be self-sustaining starting in 2015. (AP Photo/Stephan Savoia, File)
FILE - In this March 31, 2014 file photo, Katherine Smith, a customer engagement specialist in the control center for HealthSource RI in Providence, R.I., signals for a coach to assist her signing up a caller for health insurance. Rhode Island got high marks for a smooth rollout of its health insurance marketplace amid last year’s stumbles by the federal government, but the future of HealthSource RI is far from certain. Rhode Island has not identified a way to pay for it, and under the Affordable Care Act, state exchanges are supposed to be self-sustaining starting in 2015. (AP Photo/Stephan Savoia, File)

To cut costs, Colorado's state-run exchange has reduced overall spending 18 percent, including on technology and marketing. It's imposing a 1.4 percent fee on monthly premiums for its plans but also approved charging a $1.25-a-month "general market" fee on all individual and small group policies, including those sold outside the state exchange.

Some lawmakers called the fee unfair, and one board member voted against it. It is expected to raise an estimated $13 million a year before it expires in 2016.

In the District of Columbia, which also is operating its own marketplace, the exchange's budget is being funded by a new 1 percent tax on all health insurance policies. The American Council of Life Insurers sued, arguing it unfairly taxes insurance products that cannot be purchased on the exchange.

Taxing only plans offered on the exchange would have required a 17 percent tax to cover costs, officials said, reducing the benefit to low-income residents. The suit was dismissed earlier this month.

Earlier this year, California's exchange said it was setting aside $184 million in federal money to fight off projected budget shortfalls through 2016. About 1.1 million people enrolled in the first year, exceeding projections, and officials hope to grow that to 1.7 million during the second round of open enrollment.

Officials with Covered California, as the exchange is known, express confidence about its financial health. The agency's board has projected a $250 million reserve for the coming year, built partly from a $13.95 monthly surcharge on individual policies.

"We do not have a deficit; our enrollment is sufficient to fund ongoing operations through 2015-16," Covered California spokesman James Scullary said. "We remain committed to managing our resources prudently."

The Vermont marketplace, which is being funded by the state's health care provider tax, is on shakier ground. Officials there acknowledged it could face a $20 million shortfall by year's end. The state hopes pending federal grants will fill the gap.

In Rhode Island, HealthSource's individual market enrollment of more than 26,000 heading into the second sign-up period exceeded unofficial federal projections. Officials plan to continue using federal money through 2015. Beyond that, the funding mechanism is unclear.

"There's time, but there's not that much time, so these decisions need to be made," exchange Director Christine Ferguson said during a recent briefing.

She has called abandoning HealthSource short-sighted and warned that doing so could come with its own costs.

Democratic Gov.-elect Gina Raimondo wants to keep HealthSource local and has pledged to scrutinize its budget and get "creative." But the top House Democrat, Nicholas Mattiello, remains skeptical about its cost and value.

"At this point, Speaker Mattiello isn't satisfied that the exchange has made its case," spokesman Larry Berman said.

__

Associated Press writers David Gram in Montpelier, Vermont; Judy Lin in Sacramento, California; Ben Nuckols in Washington, D.C.; Michael Virtanen in Albany, New York; Brian Witte in Annapolis, Maryland; and Kristen Wyatt in Denver contributed to this report.

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Story copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Feedback, Corrections and Other Requests: AP welcomes feedback and comments from readers. Send an email to info@ap.org and it will be forwarded to the appropriate editor or reporter.


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PHOTO: FILE - In this March 31, 2014 file photo, Katherine Smith, a customer engagement specialist in the control center for HealthSource RI in Providence, R.I., signals for a coach to assist her signing up a caller for health insurance. Rhode Island got high marks for a smooth rollout of its health insurance marketplace amid last year’s stumbles by the federal government, but the future of HealthSource RI is far from certain. Rhode Island has not identified a way to pay for it, and under the Affordable Care Act, state exchanges are supposed to be self-sustaining starting in 2015. (AP Photo/Stephan Savoia, File)
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