Stick with HealthSource? It comes down to cost

Full House: More than 300 people attended last month's PBN-sponsored ?Summit on Health Care Reform & The Insurance Exchange. / PBN PHOTO/RUPERT WHITELEY
Full House: More than 300 people attended last month's PBN-sponsored ?Summit on Health Care Reform & The Insurance Exchange. / PBN PHOTO/RUPERT WHITELEY

Would Rhode Island ease its painfully strained finances by bailing out of its homegrown health insurance exchange and leaping into the federal exchange under the Affordable Care Act?

It’s an enormously difficult question. The ACA is composed of many moving parts, including some still in flux; the cost of using the state versus federal exchange is unclear; and a nearly untapped population of Rhode Island businesses is sitting out there as a potential user, with an undetermined effect on the finances of the exchange.

If that weren’t enough, a U.S. Supreme Court decision about use of federal tax credits is looming later this year. In the case, the high court could declare that federal tax credits are available only to people who buy insurance through state-run exchanges, under a slice of ambiguous wording in the original law. That decision could potentially destabilize the entire ACA.

Rhode Island is one of 16 states and the District of Columbia that chose to create its own health insurance marketplace after the Affordable Care Act passed five years ago. Now, some voices in the state have proposed abandoning the state marketplace – HealthSource RI – to jump into the federal exchange in order to save money.

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In late February, after the end of open enrollment for the second year of its existence, HealthSource RI reported that 31,513 people had signed up for insurance through the state exchange. About one-third are new customers and two-thirds are renewals from the previous year. More than 80,000 people enrolled in Medicaid through HealthSource RI.

A group of industry insiders and observers, including the new director of HealthSource RI, Anya Rader Wallack, discussed the matter – and many pieces of the picture that are still very unsettled – at a health care summit hosted by Providence Business News Feb. 26.

Most of the speakers during the panel discussion on the future of HealthSource RI leaned toward sticking with the infant marketplace. A main cheerleader for the future of HealthSource RI is Wallack, its director, who said crisply, “There is a misperception that the federal alternative costs nothing.”

Desperate for ideas to ease Rhode Island’s budget woes, some legislative leaders, including House Speaker Nicholas A. Mattiello, have said the state exchange at least needs to be eyeballed closely and its costs need to be reduced.

HealthSource RI has been operating for two years, so far entirely on the federal dime. To date, the federal government has given Rhode Island $150 million to set up and operate HealthSource, said Maria Tocco, its communications director. As of the end of 2014, the state had spent $87 million of that amount. The cost of running HealthSource in fiscal 2015 will be an estimated $50 million. And, starting January 1, 2016, Rhode Island must operate HealthSource entirely with state money.

At the summit, Wallack said HealthSource could operate at a much lower cost than it has since it was founded. One efficiency, she said, could be to cut back on advertising and marketing the exchange.

Wallack estimated it would cost the state $5 million to $15 million a year to operate on the federal exchange. That number does not include a still-unknown cost to make the transition.

She said she did not know the future annual operating costs if the state continued to run its own exchange, but declared the annual operations would be “considerably less” than the $50 million its operations will cost this year.

Dr. Kathleen Hittner, the Rhode Island health insurance commissioner and a member of the panel – said that years of attending conferences of the national association of insurance commissioners had taught her “it is important to keep things in your state if you have the opportunity. Once the feds come in you will never have that opportunity again.”

Wallack said, “HealthSource can operate at a lower cost. It has a bright future. The challenge is to make this an affordable organization.”

Advantages of a state exchange, Wallack said, include fostering innovation, being more responsive to Rhode Islanders’ needs and keeping more jobs in the state. Also, there is uncertainty about whether federal tax credits would continue for people in the federal exchange, due to the current challenge in the U.S. Supreme Court.

People on the panel who also favored sticking with HealthSource included Peter Marino, president and CEO of Neighborhood Health Plan of Rhode Island, an insurer that focuses largely on Medicaid-eligible people.

One major topic is the sluggish response to the availability of HealthSource by Rhode Island businesses. Starting this year, businesses with more than 100 employees must provide health insurance or face federal penalties. This requirement extends into 2017, encompassing smaller businesses and larger proportions of the businesses’ workforces in progressive stages.

Does HealthSource need businesses’ participation? Yes, said Wallack. “It’s important to the future success of HealthSource RI to serve Rhode Island’s small-business community,” she said. “That can be done with more and better outreach to this community.”

Businesses are slow to use the exchange for a simple reason, said James J. Raiola, of James Raiola & Associates. Businesses are not required by law to purchase insurance through exchanges and they have no motivation to do so, Raiola said, “because the rating methodology is exactly the same” working through exchanges or outside of them. “There’s no clear advantage to go through the exchange.”

How would Rhode Island pay the – yet unknown – costs of operating the exchange? The main answer coming from the panel was user fees, either on people and businesses using the exchange or on all businesses and people, in the exchange or not.

The former – assessing fees only on users of the exchange – would create fees “so high it would be economically impossible,” said Raiola. But, he said, a new user fee would be tacked on top of the 5.5 percent fee that businesses are already paying to support the ACA on the federal level. This could be a hard sell to businesses that don’t even use the exchange.

In the decision to stick with HealthSource RI or jump into the federal boat, Raiola said, “If we defer to the federal exchange we will have to pay a fee to the feds anyway. That fee needs to be quantified.” •

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