Health Exchange Funding: A Capitol Debate

Back in December, the Colorado Health Institute predicted that there would be legislation related to the long-term financing of the Colorado Health Benefit Exchange (COHBE) this session. That bill has officially been introduced, and it was discussed for the first time last Thursday in the House Health, Insurance and Environment Committee.

House Bill 13-1245 proposes two funding streams for the exchange:

1. It allows COHBE to assess a monthly fee on small group and individual health insurers who operate within the exchange, limited to $1.80 per plan for carriers in the individual market and $1.80 per policyholder for small-group carriers.
2. It creates a tax credit for insurance carriers that make a contribution to the exchange. The credit helps to offset premium taxes owed by insurers to the state. This is designed encourage insurers to make voluntary donations to COHBE.

Rep.  Beth McCann (D-Denver) is the bill’s sponsor in the House. She said the law will help the exchange remain financially viable after its federal funding is phased out. The exchange is currently financed through federal grants, but federal law requires it to be financially self-sufficient by 2015. 

The tax credits and fees in the bill are modeled after the funding mechanisms used by CoverColorado, the non-profit organization that provides health insurance to Coloradans who can’t  get coverage elsewhere, typically due to a pre-existing condition. (As we wrote previously, there is legislation in the works to repeal CoverColorado now that Obamacare makes it illegal to deny coverage due to preexisting conditions. If the law is approved, COHBE would receive 25 percent of any funds that remain after CoverColorado is dissolved.)

COHBE Executive Director Patty Fontneau told the committee that the funding mechanisms of HB 13-1245 are one part of a multi-faceted financing plan. In addition to the tax credits and monthly fee assessments, the exchange plans to generate revenue through foundation grants, web advertising and charging an additional administrative enrollment fee on insurance carriers that carry plans on the exchange.  

Fontneau called COHBE’s financing approach “reliable, diversified and fair” and said it would allow the exchange to be financially self-sustaining by the 2015 deadline. She said that COHBE only intends to assess the $1.80 monthly fee on carriers for the first few years of operation while the organization builds up reserves and grows enrollment. She said that the $1.80 monthly fee on insurers amounts to “less than two-tenths of one percent of the cost of an average family plan.” 

Many organizations that supported SB 11-200 – the bill that originally established the exchange – testified in support of HB 13-1245, including the Colorado Center for Law and Policy and the Colorado Consumer Health Initiative. Other groups, including the National Federation of Independent Businesses and the Denver Metro Chamber of Commerce, said they were waiting to see the amendments on the bill before taking a position. Business groups also expressed an interest in keeping fees as low as possible.

Rep. Amy Stephens (R-Monument), who sponsored the original bill to establish Colorado’s exchange, asked Fontneau how COHBE’s fees compared with those of the federal health benefit exchange, which will be the default option for states that don’t establish an exchange. Fontneau said the federal exchange will have an enrollment fee of 3.5 percent of premium cost, while the Colorado exchange’s enrollment fee is currently set at 1.4 percent of premium cost.   

Rep. Spencer Swalm (R-Centennial) expressed broader concerns, including questions about whether the exchange would help to control ballooning health care costs. No one testified in opposition to the bill.

We expect a number of amendments to be introduced in the coming weeks that provide additional detail and clarification, including an amendment that would cap the amount of tax credit dollars that can be distributed annually. Some groups expressed an interest in an amendment requiring that any leftover money from CoverColorado that is donated to the exchange be used to reduce COHBE’s fee assessments.

At the end of Thursday’s hearing, Rep. McCann asked that HB 13-1245 be laid over to allow time to gather additional stakeholder input and iron out the amendments. Indeed, the support of many organizations that testified at Thursday’s hearing could be contingent upon the language of these amendments, so they will be an important part of this bill moving forward.

The Colorado Health Institute anticipates that future debate on HB 13-1245 could bring back many of the arguments that we heard for and against SB 11-200 two years ago. We will keep you informed as the amendments on HB 13-1245 are introduced.