Components of ACA Not Working Well: Health Exchanges

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Repeal >> Components of ACA Not Working Well >> Health Exchanges (last updated 10.31.16)

Also see State Experience with ACA Exchanges

Overview

There has been a variety of problems with the ACA Health Exchanges, including low participation by states and a variety of rollout glitches that subsequently were fixed, but due to the flawed design of the federal Exchange website, the “back-end” functionality still has yet to be put into place. Various problems also interfered with getting two national plans in every state and in creation of nonprofit cooperatives that were also supposed to provide consumers with greater plan choices.  The security of information being compiled through the Exchanges poses risks to privacy, opportunities for fraud/identity theft and even cybersecurity attacks. There are concerns about Exchange subsidies being obtained fraudulently and about rampant confusion among those who learn at tax time that they owe back hundreds or thousands of dollars of Exchange subsidies that were inaccurately calculated (even for those who diligently followed the rules). Finally, the administration’s ambitions to create small business exchanges have fallen far short of expectations.
Note that there are other problematic aspects of the Exchanges that have become the subject of litigation. Hence they are covered elsewhere. These include premium and cost-sharing subsidies that, according to the letter of the law, are illegal in States with Federally-run Exchanges  (see IRS Challenge (Exchange Subsidies for a detailed discussion) and employer subsidies for members of Congress and their staff that likewise have been subject to legal challenge (see Congressional Exemption–Johnson and Ericson v. Office of Personnel Management at Pending Legal/Constitutional Challenges).

Low State Participation

The ACA began with only 16 states (including D.C.) setting up their own Exchanges, while 7 agreed to a partnership Exchange. Subsequently 2 state-run Exchanges failed in 2014 (Nevada and Oregon) and 2 more failed in 2015 (Hawaii and New Mexico). As of early December 2015, another 5 state-run Exchanges are financially troubled (California, District of Columbia, Minnesota, Vermont, Washington and financial problems at 2 others are so severe that they are considering shutting down (Colorado and Rhode Island). The Massachusetts Exchange likewise has been plagued with both technical and financial difficulties that raise questions about its survivability. And a newly-elected governor in Kentucky has announced plans to shut down that state’s Exchange by 2017. Thus, it is conceivable there would be as few as 5 state Exchanges operational for the 2017 open enrollment period.

2016. According to Kaiser Family Foundation (11.2.15), there are 13 State-based Marketplaces; 4 Federally-supported Marketplaces (this includes 2 additional states whose Exchanges failed: Hawaii and New Mexico; 7 State-Partnership Marketplaces; 27 Federally-facilitated Marketplaces.

2015. According to Kaiser Family Foundation, 2015 exchanges were comprised of 14 State-based Marketplaces, 3 Federally-supported Marketplaces (this includes 2 states whose Exchange failed: Nevada and Oregon), 7 State-Partnership Marketplaces, and 27 Federally-facilitated Marketplaces.

2014. Less than half of states set up Exchanges. 15 states and District of Columbia will run their own State-based Exchange; 7 will use a joint federal-state Partnership Exchange; 28 states were unwilling to set up an exchange, so they defaulted to  a Federal Exchange. Federal and state health officials appear to be delayed in setting up new health insurance exchanges for small businesses and consumers, and it “cannot yet be determined” whether the exchanges will be ready to open in October, according to two new Government Accountability Office (GAO) reports released in June 2013.

Lower-Than-Expected Enrollment

Regular ACA Exchanges

  • Washington Post. Health-care Exchange Sign-ups Fall Far Short of Forecasts.(8.27.16) “Enrollment in the insurance exchanges for President Obama’s signature health-care law is at less than half the initial forecast, pushing several major insurance companies to stop offering health plans in certain markets because of significant financial losses. As a result, the administration’s promise of a menu of health-plan choices has been replaced by a grim, though preliminary, forecast: Next year, more than 1 in 4 counties are at risk of having a single insurer on its exchange, said Cynthia Cox, who studies health reform for the Kaiser Family Foundation. Debate over how perilous the predicament is for the Affordable Care Act, commonly called Obamacare, is nearly as partisan as the divide over the law itself. But at the root of the problem is this: The success of the law depends fundamentally on the exchanges being profitable for insurers — and that requires more people to sign up.”
  • CBO, March 2016. “The CBO is bumping up its expectations for Medicaid enrollment while lowering projections for overall marketplace enrollment… The budget office expects about 19 million people to be enrolled on marketplace plans by 2018 — a figure that is likely to stay flat over the next decade. The vast majority of those customers will receive federal subsidies, between 14 million and 16 million people.” (The Hill, 3.24.16)
  • CBO, January 2016. The Budget and Economic Outlook: 2016 to 2026. “CBO and JCT now estimate that about 9.5 million people enrolled in coverage purchased through the exchanges, on average, during 2015 and that 8 million of those enrollees received subsidies.”
  • HHS, 2015. Compared to CBO’s original March 2010 projection of Exchange enrollment, actual enrollment fell 31% below projections in 2014, 27% below in 2015 and will fall below projections by 52% in 2016 assuming the administration hits their planned target of 10 million Exchange enrollees at the end of 2016 (more details here).

Explaining Lower-Than-Expected Enrollment

  • CBO Misses Its Obamacare Projection By 24 Million People. “Based on the CBO’s own numbers, it seems possible that Obamacare has actually reduced the number of people with private health insurance. In 2013, the CBO projected that, without Obamacare, 186 million people would be covered by private health insurance in 2016—160 million on employer-based plans, 26 million on individually purchased plans. The CBO now says that, with Obamacare, 177 million people will be covered by private health insurance in 2016—155 million on employer-based plans, 12 million on plans bought through Obamacare’s government-run exchanges, and 9 million on other individually purchased plans (plus a rounding error of 1 million). In other words, it would appear that a net 9 million people have lost their private health plans, thanks to Obamacare—with a net 5 million people having lost employer-based plans and a net 4 million people having lost individually purchased plans. None of this is to say that fewer people have ‘coverage’ under Obamacare—it’s just not private coverage. In 2013, the CBO projected that 34 million people would be on Medicaid or CHIP (the Children’s Health Insurance Program) in 2016. The CBO now says that 68 million people will be on Medicaid or CHIP in 2016—double its earlier estimate. It turns out that Obamacare is pretty much a giant Medicaid expansion.”  (Weekly Standard, 3.28.16)
  • Costs, Changes Led Obamacare Enrollment to Fall Short of Earlier Estimates. “Reasons why supporters say enrollment is lower than the original projections include:
    • The process hasn’t completely recovered from the disastrous rollout of the federal Healthcare.gov website in the fall of 2013.
    • CBO expected a lot more employers to drop their plans and send workers to the exchanges for their coverage.
    • CBO also thought more people who didn’t get subsidies would still buy on the exchanges.
    • Critics say signups were slower than expected because having insurance may not be as important to people as the administration thought it would be, given other financial needs. And it’s often cheaper to pay the penalty and pay cash for health care.
    • Young, healthy people in particular don’t feel like they should have to pay for benefits the plans have to cover, such as mental health and maternity care. “ (USA Today, 2.16.16)
  • Decreased Consumer Interest
    • Morning Consult reports (11.2.15) that in the 2016 enrollment season, “there has been a significant drop in the number of voters who plan to visit an Obamacare exchange website this enrollment season. The new poll found that only 24 percent of respondents said they plan to visit an exchange site within the next few months. That is a substantial shift from two years ago, when HealthCare.gov launched. In Nov. 2013, 65 percent of respondents said they planned to visit HealthCare.gov or a state online exchange during the first enrollment season.”

Small Business (SHOP) Exchanges

The SHOP (Small Business Health Options Program) marketplaces enable businesses with 50 or fewer employees to purchase private health insurance for their employees, and employers with fewer than 25 employees and lower-wage workforces to earn a tax credit for doing so.

2015 Experience

  • ‘Secret’ SHOP? Small Biz Health Exchange Still Worth Considering. “One of the ACA’s chief architects, Massachusetts Institute of Technology economics professor Jonathan Gruber, said SHOP wasn’t expected to be a blockbuster, but it wasn’t supposed to be a total bust, either. ‘I don’t think we ever expected SHOP to become as important as the individual exchanges,’ Gruber told SHRM Online. ‘I think we’re still a bit surprised it hasn’t worked at all.’… ‘Numbers don’t lie,’ said John Polk, president of Cleveland -based insurance and service consultancy Affinity Group Strategies. ‘Out of about 11.5 million people who are signed up for coverage, either through Healthcare.gov or their state exchanges, about 85,000 of them are employees of small businesses, and about 10,000 small businesses are responsible for those people. So SHOP participation represents a ‘batting average’ of about .008. That is somewhere between abysmal and disgraceful.’” (SHRM, 9.1.16)
  • Enrollment Less than 10% of Expected. According to Sally Pipes (11.16.15), the Congressional Budget Office projected that a million people would enroll. Instead, 85,000 workers from 11,000 companies have done so. Those 85,000 represent less than 1 percent of all workers covered by small-group plans outside Obamacare’s exchanges. In Kentucky, only 92 employers signed up. Washington, Minnesota, Maryland, and Idaho all saw fewer than 200 workers enroll.
    • Limited Choice. In many states, there are fewer plans offered inside the SHOP exchange than on the private market outside. In several states, there’s only one.
    • Expensive Coverage. SHOP Exchanges can only offer ACA-compliant coverage, which can raise premiums for small firms as much as 18% according to a study by the consulting firm Oliver Wyman.
    • Limited Interest. In California, an estimated 7 out of 10 companies have kept their original coverage rather than switch to ACA-compliant plans.
    • Tax Credit Red Tape. The ACA offered small businesses a tax credit for signing up in a SHOP exchange.  The Obama administration initially predicted that as many as 4 million small companies would claim the tax credit, which refunded 35 percent of the employer’s health costs. That figure has since increased to 50 percent. But only a handful have been able to fulfill the complicated requirements associated with claiming it. According to the Government Accountability Office, simply determining whether a company was eligible required poring over more than a half-dozen worksheets and making 15 separate calculations.
  • Small Businesses Snub Health Exchanges for Coverage. Wall Street Journal, 1.7.15. “Some small-business owners are snubbing the new health-insurance exchanges, operating under the Small Business Health Options Program, citing limited federal tax credits and a small menu of insurance offerings in a few states, companies and health-insurance brokers said. Under the program, small businesses in 33 states have been able since Nov. 15 to buy coverage for their employees through HealthCare.gov, the Affordable Care Act’s online insurance enrollment site…Although Ms. Bremer said she has seen the marketplace for individuals take off—in early December she was working 80-hour weeks signing up individuals—she refers to the SHOP exchange as a ‘non-starter.’”

2014 Experience

  • Urban Institute (August, 2014). Early Stakeholder Experiences With Small-Business Marketplaces. Participation of employers in the small group Marketplaces, or the Small Business Health Options Program (SHOP), has started very slowly. Enrollment figures, for the few states that have released them, measure in the low thousands— sometimes only in the hundreds. Though the SHOP Marketplaces have emerged sluggishly, the reasons for this are largely consistent across the states, and many of them lend themselves to reversal or improvement.” Barriers cited were the federal delays of the program, the limited reach of tax credits, a low number of brokers/agents steering their clients to SHOP plans, and IT problems.
  • The Commonwealth Fund (March 2014). Taking Stock of SHOP Marketplaces (3.26.14). “The program is clearly off to a shaky start. The federal government has postponed some important aspects of the program, including the requirement that SHOP marketplaces offer online options for enrollment and that SHOP be able to offer employees a choice of plans. Washington, D.C., and some of the 17 states running their own marketplaces are implementing both these aspects of SHOP but none of the 33 states relying on the federal government are doing so. These delays add to the impression that the long-term success of the SHOP is uncertain…The determining factor will be whether they offer a product competitive enough to attract a stable risk pool. In this respect, they will face competition not only from the traditional small-business insurance market, but also from private exchanges, which may prove more agile.”

Problems With Exchange Costs

High Exchange Costs

Federal Exchange

Items are in reverse chronological order.

  • White House Asks Taxpayers for $535 Million to Run Obamacare Exchanges. “After squandering billions of dollars on a broken website, improper payments, and faulty contracts, the White House is asking taxpayers to hand over another $535 million to the Department of Health and Human Services (HHS) to operate the Affordable Care Act (ACA) exchanges in 2017. This request flies in the face of recent and historic evidence that HHS has consistently misused taxpayer dollars in its implementation of the ACA. Consider a few of the most egregious examples of HHS waste, fraud and abuse.”  (Freedom Partners, 2.16.16)
  • GAO: Where Did ObamaCare’s $3.7B Go? “The Obama administration has spent at least $3.7 billion to build and promote online marketplaces under the Affordable Care Act, but it can’t prove exactly where it all went, according to an audit released Monday. Federal investigators said the Centers for Medicare and Medicaid Services (CMS) does not properly track certain data that public officials need in order to determine whether the healthcare law is working. The government tracks its healthcare spending in an outdated records system that cannot easily respond to data requests such as salaries or public relations contracts in certain departments. Instead, officials rely on manually prepared spreadsheets that can take months to produce.  Out of that data, ‘we were not able to determine the reliability of most of the information,’ according to the report by the independent Government Accountability Office (GAO).” (The Hill, 9.23.14)
  • Obamacare Website Costs Exceed $2 Billion, Study Finds. “The federal government’s Obamacare enrollment system has cost about $2.1 billion so far, according to a Bloomberg Government analysis of contracts related to the project. Spending for healthcare.gov and related programs, including at the Internal Revenue Service and other federal agencies, exceeds cost estimates provided by the Obama administration, the analysis found. ” (Bloomberg, 9.24.14)
  • DHHS Inspector General. Twenty O-Care Contractors Exceeded Cost Estimates, Review Finds. (The Hill, 8.26.14) “The federal government is due to pay at least 20 contractors more than their original estimates for work on HealthCare.gov and the rollout of ObamaCare, according to an official review released Tuesday. The Department of Health and Human Services inspector general (IG) found that federal contracts on the rollout exceeded $1.7 billion in value. Seven companies are due to receive more than double their initial estimates, the IG report stated. The government was obligated to pay nearly $800 million for 60 contracts related to the federal marketplace as of February 2014. By that time, it had spent nearly $500 million. The IG review is perhaps the first to sketch the financial consequences of the technical problems that nearly killed HealthCare.gov and several other exchanges last fall.”
  • High Costs per Enrollee. Restrepo, Katherine and Chris Conover. Obamacare’s Longshot: Assessing The Exchange Enrollment Derby. Forbes.com (5.5.14). “The 7 states with the most dysfunctional Exchanges (Oregon, Maryland, Massachusetts, Vermont, Minnesota, Nevada, and Hawaii) collectively spent $1.27 billion in federal funds on their Exchanges but signed up only 308,000 enrollees through April 19, 2014, or more than $4,100 per enrollee.”
  • Begley, Sharon. As Obamacare Tech Woes Mounted, Contractor Payments Soared. (Reuters, 10.17.13) “As U.S. officials warned that the technology behind Obamacare might not be ready to launch on October 1, the administration was pouring tens of millions of dollars more than it had planned into the federal website. A Reuters review of government documents shows that the contract to build the federal Healthcare.gov online insurance website – key to President Barack Obama’s signature healthcare reform – tripled in potential total value to nearly $292 million as new money was assigned to the work beginning in April this year.”
  • Worstall, Tim. Developing Exchanges Cost More Than Apple’s Original iPhone. Forbes.com (10.17.13). “This is a stunning number from Farhad Manjoo over at the Wall Street Journal. The development cost of the health care exchanges necessary under the ACA (aka Obamacare) is larger than the development cost of the original iPhone at Apple. Indeed, by some estimates it might be four times the cost.”  Manjoo offers several reasons for the federal cost overruns:
    • Small Number of Large Contractors Qualified. Today, any company looking to work with the government must navigate an obstacle course of niggling, outdated regulations and arbitrary-seeming requirements. For instance, your technology must be Y2K-compliant just to get in the door. The process locks out all but a tiny handful of full-time contractors—companies who also happen to be big federal lobbyists.
    • Lack of Federal IT Purchasing Expertise. Worstall states: “No one actually inside government really knows how to buy tech projects…You can indeed subcontract out most of the work but you’ve at least got to be able to define what it is that you want: something that isn’t easy and is a rare skill in and of itself.”
    • Last-Minute Surge in Spending. But evidence of a last-minute surge in spending suggests the needs of the project were growing well beyond the initial expectations of the contractor and the U.S. Department of Health and Human Services. “Why this went from a ceiling of $93.7 million to $292 million is hard to fathom,” said Scott Amey, general counsel at the Project on Government Oversight, a Washington, D.C.-based watchdog group that analyzes government contracting. But adding manpower to a late software project makes it later (Brooks Law).
    • Lag in Finalizing Specifications.  The changes to the Healthcare.gov contract came in response to more detailed requirements about how the site should operate, said a person at CGI familiar with the work. When CMS awarded CGI Federal the first $55.7 million delivery order in 2011, “most of the regulations and guidance implementing the Affordable Care Act had not yet been finalized,” said the person with knowledge of the award. The Obama administration was issuing regulations and changing policy regarding how the reform should be implemented late into this summer. Many required significant changes to the IT running Healthcare.gov, which kept contractors scrambling.
    • Federal Bidding Process Encourages Vague Specifications. Indefinite Delivery/Indefinite Quantity (ID/IQ) contracts allow the government “to write a laundry list of things they can order from the contractor,” said Sarah Gleich, an attorney and government procurement expert at Gibson, Dunn & Crutcher. “They’ll write incredibly broad descriptions of the work, like ‘telecom services,’ so you can’t tell what they’re ordering.” The advantage of an ID/IQ contract, said experts, is that it can be expanded almost indefinitely, without the government having to solicit new bids for additional work.

State Exchanges

  • Christian Science Monitor. Obamacare: How Much Did Taxpayers Spend on Clumsy State Exchanges? (5.13.14) “For all its problems coming out of the gate last fall, the Obamacare federal website, HealthCare.gov, looks like a success story compared with the health insurance websites that some individual states have set up. A handful of the state-run marketplaces for insurance shopping have emerged as costly technological messes, unable to function smoothly. Whereas a ‘surge’ of tech support finally got HealthCare.gov rolling, these states are still stuck. This tale of costly state exchanges is partly a story of government waste and flawed bureaucracy, and partly a story of a Congress that didn’t put enough limits on state spending from the onset, some analysts say. The result is that more taxpayer money went to setting up individual exchanges for 14 states and the District of Columbia than for the federal Healthcare.gov that services the other 36 states, by one account. ‘Much of the money going to state-run Exchanges has not been well-spent,’ concludes Jay Angoff, a health policy expert at the law firm Mehri & Skalet in Washington, who has tracked the federal numbers. In a written analysis, he suggests that the Department of Health and Human Services (HHS) should avoid throwing more good money after bad.”
  • State Exchanges Spent Three Times More on Obamacare Signups. “States that had their own exchanges under the Affordable Care Act spent more than three times as much on assisting the uninsured to get enrolled in Obamacare than states that declined to start their own operations, a study released Wednesday says.The report from the Robert Wood Johnson Foundation and the University of Pennsylvania’s Leonard Davis Institute of Health Economics says that on average, states with their own clearinghouses for health coverage spent an average $17.15 on each uninsured resident while those that relied on the federal exchange spent $5.42.” (Market Watch, 4.30.14)

Solvency of State Exchanges

Items are in reverse chronological order.

  • The Hill. GOP Report: State-run ObamaCare Exchanges are Headed for Collapse. (9.13.16) “The dozen ObamaCare exchanges run by the states are struggling financially and could be headed toward collapse over the next several years, according to a new report released Tuesday by House Republicans. All of the active state-run exchanges are still relying on federal dollars, nearly two years after they were supposed to be self-sustaining under law, according to a lengthy report by Republicans on the House Energy and Commerce Committee. Investigators blasted the Obama administration’s oversight and management of the state exchanges as ‘a costly mess.’ States have received a total of $4.6 billion in federal grants to launch their own exchanges, according to the report. The use of those federal dollars is ‘entirely subject to the whims of state governments,’ the report said, citing a decision by the Centers for Medicare and Medicaid Services to tweak its grant funding rules to help states with their operational expenses. The grants were originally intended to be used only for establishing the exchanges. Facing higher costs and lower insurance enrollment than expected, Republican investigators said, several states have turned to ‘misusing federal grant dollars in order to stay solvent.’”
  • Sarich, John. Getting to the Root of the Merger and Acquisition Frenzy. (12.4.15) “While the ACA itself may survive, it’s clear that already some of the state-run co-ops and exchanges are starting to die. In a way, it’s surprising that they’ve lasted as long as they have. The exchanges were supposed to be nonprofit and undercut the price of health policies, compared to the rates offered by standard insurance companies. What the creators of the co-ops and exchanges didn’t bargain on was that insurance company margins were already so tight, and such efficiencies had been gained. So as a result, the co-ops couldn’t compete with the low costs of the more experienced organizations. The new nonprofits stepped into a playing field where they were competing against companies that have been around for 70 or 80 years, and they couldn’t make their pricing competitive with the big guys.”
  • The New York Times. State Health Exchanges Struggle with Costs. (7.26.15) “State-run health insurance markets that offer coverage under President Barack Obama’s health law are struggling with high costs and disappointing enrollment. These challenges could lead more of them to turn over operations to the federal government or join forces with other states…Twelve states and the District of Columbia fully control their markets. Experts estimate about half face financial difficulties. Federal taxpayers invested nearly $5 billion in startup grants to the states, expecting that state markets would become self-sustaining. Most of the federal money has been spent, and states have to face the consequences.”
  • The Hill. States Quietly Consider ObamaCare Exchange Mergers. (5.22.15) “A number of states are quietly considering merging their healthcare exchanges under ObamaCare amid big questions about their cost and viability. Many of the 13 state-run ObamaCare exchanges are worried about how they’ll survive once federal dollars supporting them run dry next year. But a shared marketplace — an option buried in a little-known clause of the Affordable Care Act — has become an increasingly attractive option for states desperate to slash costs. If state exchanges are not financially self-sufficient by 2016, they will be forced to join the federal system, HealthCare.gov. ‘What is happening is states are figuring out the money is running out,’ said Jim Wadleigh, the director of Connecticut’s exchange, hailed as one of the most successful in the country. ‘At the end of 2016, everyone has to be self-sustaining.’”
  • Pipes, Sally. State-Run Obamacare Exchanges Careening Toward Disaster. (5.18.15) “This year was supposed to be the first wherein Obamacare’s state-based insurance exchanges would be self-sufficient. By now, the law’s architects assured, the exchanges would be thriving, competitive marketplaces, where all Americans could secure affordable coverage. It hasn’t worked out that way. Two of the original 17 state exchanges have failed. Half of those that remain are struggling financially. After getting $5 billion in federal grants, most of the state exchanges have turned out to be a disastrous mix of runaway spending on technology, lower-than-expected enrollment, huge overhead costs, and looming bankruptcy.”
  • Commonwealth Foundation. State-Based Marketplaces Look for Financing Stability in Shifting Landscape. (5.14.15) “But as federal funding disappears, state-based marketplaces have to raise their own revenue for operations. Although each state has approached this task differently, most use an assessment on health plans as their primary financing mechanism (see exhibit). This also is true of the federal government, which has established a 3.5 percent user fee on premiums for plans sold through HealthCare.gov. Because marketplaces operate in a dynamic environment, many have been forced to reassess how they support themselves, leading states to pursue both incremental changes to their financing method as well as more fundamental shifts, such as transferring some aspects of marketplace operations to the federal government. After only a year and a half, premiums and enrollment remain moving targets that affect the total revenue that marketplaces generate. For example, Connecticut is bringing in less revenue than planned from their premium assessment this year because premiums increased less than expected.”
  • Washington Post. State-Established Obamacare Exchanges are Struggling Over Their Future. (5.1.15) “Nearly half of the 17 insurance marketplaces set up by the states and the District under President Obama’s health law are struggling financially, presenting state officials with an unexpected and serious challenge five years after the passage of the landmark Affordable Care Act. Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer-call centers — and tepid enrollment numbers. To ease the fiscal distress, officials are considering raising fees on insurers, sharing costs with other states and pressing state lawmakers for cash infusions.”
  • Fox News. Washington State’s ObamaCare Exchange Faces Funding Shortfall. (3.12.15) “The state has enrolled 160,000 paying customers in ObamaCare exchange health plans but that’s more than 50,000 short of goal, which has led to an extension of the enrollment deadline and a request that the Washington State Legislature fork over $125 million to fund the exchange…Only 14 states, including Washington, are operating their own ObamaCare exchanges and many are struggling to make it without help from taxpayers. New York’s governor wants a $69 million tax on non-exchange health insurance policies while Vermont has projected a $20 million shortfall by the end of 2015. There also is a bill in Rhode Island to scrap the state exchange and go with the federal exchange to avoid a $24 million hit to taxpayers. Massachusetts, which has been at this longer than anyone, does not have a general tax to fund its exchange, but does rely on a hefty cigarette tax and an employer’s tax.”
  • Small States’ Big Struggle to Fund Health Exchanges. Describes financial problems in the Hawaii, Vermont, District of Columbia, and Rhode Island exchanges. “The size of smaller states’ markets are small — meaning there’s less revenue from taxes — but they face many of the same fixed costs in maintenance and technology as large states do…In statehouses over the next several months, debates will rage over how to fund exchanges — but also whether those exchanges are worth maintaining at all, and in what form.” (Governing the States and Localities, 2.17.15)
  • Modern Healthcare. Funding Woes Imperil Future of State-run Exchanges. (1.10.15) “So far, the CMS has dispensed more than $4 billion in grants to help launch state-run exchanges. In December, the agency issued its final round of grants, roughly $265 million to 10 states with existing state-run marketplaces, to assist with technology development and enrollment efforts. Despite the influx of federal funds, many state-based exchanges are facing projected deficits this year and in future years. Colorado, Oregon and Rhode Island are considering abandoning their state-run exchanges and using the federal exchange because of financial struggles. An independent audit of Colorado’s marketplace released in December found lax financial controls resulting in questionable payments and contracts.”
  • FierceHealthPayer. Solvency worries grip state health exchanges. February 14, 2014. “State exchanges may have trouble becoming financially self-sufficient by January, 2015 as required by the Affordable Care Act, the Associated Press reported. The federal government picked up a tab of nearly $3.8 billion to launch marketplaces run by 14 states and the District of Columbia. But since projected health plan enrollments are lower than anticipated, the insurance surcharges meant to fund state exchanges may not throw off enough income to operate them in the future, the AP noted. Moreover, fixes for underperforming state exchange websites are straining budgets and resulting in lost income as frustrated customers buy coverage elsewhere.”

Financial Mismanagement

Items are in reverse chronological order.

  • Federal Exchange. “The public employees responsible for overseeing $600 million in contracts to build healthcare.gov were inadequately trained, kept sloppy records, and failed to identify delays and problems that contributed to millions in cost overruns. That’s according to a new government audit, published today. It reveals widespread failures by the federal agency charged with managing the private contractors who built healthcare.gov. The audit is the first to document, in detail, how shoddy oversight by the Centers for Medicare and Medicaid Services (CMS), which manages federal health programs including Obamacare, contributed to the website’s early struggles… What’s not clear is whether anyone else has been held accountable—or if other contracts are being handled better today. In comments to the auditors included in the report, CMS concurred with their recommendations, including the rather obvious suggestion that staff ‘comply with federal regulations and contract terms.’” (Bloomberg Business, 9.15.15)
  • State Exchanges.
    • Where Did Billions in Obamacare Grants Go? “The federal government and the states have no idea what happened to billions of dollars given to create Obamacare’s exchanges, according to a federal watchdog. The Government Accountability Office charged the Obama administration and many state-run healthcare exchanges with not adequately tracking federal funding, according to a report in the libertarian Reason magazine on Monday…The report’s findings are the latest problem to bubble up over the management of Obamacare. Last week, the GAO found that 11 fake applications were re-enrolled in Obamacare earlier this year and continued to get subsidies. The applications were re-enrolled without new documentation.” (Washington Examiner, 7.20.15)
    • Watchdog Warns States May Be Misusing Obamacare Funds. “The federal government isn’t doing enough to keep states from misusing Obamacare money, according to a watchdog agency’s warning…Washington’s state exchange has received more than $185 million in federal grants. It might need $10 million to pay for operating expenses like printing, postage, and bank fees, according to the letter. “When we were awarded the funding, [CMS] informed us that they were allowable costs,” said Michael Marchand, spokesman for the Washington Health Benefit Exchange. Rhode Island’s exchange, which got $151 million, doesn’t currently have another source of revenue but may try to sell advertising or license its technology to other states, the letter states. A spokesperson for the exchange said the governor’s proposed budget would include fees on health plans to fund it. State-level audits in Vermont, Colorado, and Minnesota have also raised questions about oversight of those states’ exchanges. Each got close to $200 million in federal grants.” (Bloomberg Business, 4.29.15)

Problems Related to Affordability

General Affordability Problems

Also see ACA and Household Budgets, Exchange Enrollees.

  • Premium Increases.
  • Avalere. Exchanges Struggle to Enroll Consumers as Income Increases (3.25.15). This report used 2015 enrollment data to calculate the fraction of Exchange-eligible individuals who actually enrolled in the ACA Exchanges. The figure steadily decline by poverty status (family income as % of FPL=federal poverty level): 76% (100-150% FPL), 41% (151-200% FPL), 30% (201-250% FPL), 20% (251-300% FPL), 16% (301-400%), 2% (over 400% FPL). The general picture indicates that Exchange coverage is not a very good deal except for those who are heavily subsidized to purchase it.
  • Mark Pauly, Adam Leive, Scott Harrington. The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsureds. This Wharton School study estimates the change in net (of subsidy) financial burden (“the price of responsibility”) and in welfare that would be experienced by a large nationally representative sample of the “non-poor” uninsured if they were to purchase Silver or Bronze plans on the ACA exchanges. The authors show that the average financial burden will increase for all income levels once insured. Subsidy-eligible persons with incomes below 250 percent of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of additional consumption of medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare; indicating a positive “price of responsibility” for complying with the individual mandate. The percentage of the sample with estimated welfare increases is close to matching observed take-up rates by the previously uninsured in the exchanges.

Dependent Affordability Glitch (“Family Glitch”)

  • Marketplace Subsidies: Changing The ‘Family Glitch’ Reduces Family Health Spending But Increases Government Costs. “More than six million people live in such families and as a result are ineligible for premium tax credits. These families face premiums that can amount to 15.8 percent of income, or 12.0 percent after the tax advantages of employer-sponsored health coverage are factored in. We modeled the potential impact of changing the affordability test to take into account the cost of family coverage. Doing so would reduce spending on premiums from 12.0 percent to 6.3 percent of income, significantly alleviating financial burdens, but would generate little additional coverage. We estimated the additional costs to the federal government for premium tax credits and cost-sharing reductions to be between $3.7 billion and $6.5 billion in 2016.” (Health Affairs, July, 2016)
  • Norris, Louise. (11.10.15) Family Glitch Makes Health Insurance Unaffordable for Some Families. “All of this was clarified by the IRS in a final rule they published in 2013. And although the problem is widely referred to as the ‘family glitch,’ it’s not really a glitch in the sense that it was carefully considered by the Government Accountability Office and the IRS before the regulations were finalized. The concern was that if dependents in this situation were able to obtain subsidies in the exchange, it would increase the total amount that the government has to pay in subsidies. Since employers only have to make coverage meet the ‘affordable’ criteria for their employees, there were worries that employers might cut back on the contributions that they make to dependents’ health insurance premiums, thus sending even more spouses and kids to the exchanges for subsidized coverage… It remains to be seen whether the family glitch will eventually be fixed. Fortunately, many of the children who would otherwise be caught in the family glitch are eligible for CHIP (Children’s Health Insurance Program). But for those who aren’t, and for spouses who are in the family glitch, coverage can still be out of reach, despite the fact that it’s technically considered affordable.”
  • Report: IRS Locks 1.93M Spouses and Kids Out of Obamacare. “According to the group, the IRS interpreted an ambiguous part of Obamacare, about what kind of affordable coverage employers must offer, so that employers are only required to offer affordable individual coverage, and not an affordable family plan, too. If someone gets an affordable insurance offer, it renders them ineligible for subsidies on the exchanges — but because of the glitch, an employee’s spouse or children may not have access to affordable coverage or the subsidies. ‘Spouses and children of an employee offered ESI could be unable to afford the employer plan, but because it is offered to one family member, the rest are made ineligible for subsidies in the Exchanges,’ the study says. This issue, which might affect up to 1.93 million people, could also have perverse and harmful economic consequences.’ Another effect of the glitch will be the creation of a disincentive for unemployed or underemployed people to accept better jobs with benefits packages,’ according to the study.” (National Review, 9.22.14)
  • Book, Robert A. (August 2012). The IRS Employer Mandate Loophole. Forbes.com (8.8.12). When an employee is offered individual-only coverage for less than 9.5% of that employee’s wages, the employee’s family is not eligible for exchange subsidies, even if the employer offers no family coverage and they would otherwise qualify for subsidies based on their income.

Consumer Experience

  • Deloitte Center for Health Solutions: 2015 Survey of US Health Care Consumers. Consumer Experience with Public Health Insurance Exchanges. (Download the PDF)  “Findings from the Deloitte Center for Health Solutions 2015 Survey of US Health Care Consumers suggest that HIX customers differ from those with other sources of insurance coverage. They are more cost-conscious, price-sensitive, and focused on finding a plan that offers good value and fit.
    • Affordability: The exchanges have improved access to care, but affordability remains a problem… one in three enrollees with coverage for the entire year had trouble paying their out-of-pocket (OOP) health care expenses. Compared to other insured cohorts, HIX enrollees are less confident that they can get affordable care and feel less prepared financially to handle their future health care costs.
    • Satisfaction: Eight in ten renewing enrollees stayed with the same insurance carrier, but plan satisfaction is an issue. Nearly half of renewing enrollees report they switched insurance products, and only 30 percent of all surveyed HIX enrollees say they are satisfied with their current plan, which is significantly lower than other insured cohorts.
    • What is needed to equip this new generation of health care consumers? Survey findings point to multiple purchasing channels, more reliable information sources, better decision support, and further development of online resources and digital technologies.
    • Advancements, especially those related to communication and plan design, may also go a long way towards reaching individuals who remain uninsured. Most of them want coverage, but say they need lower-cost options, better information, security assurances, and an easier enrollment process.
  • Senator John Barasso (Ed.) (11.1.15) “For some people, their old plan won’t be available at any price. This includes more than a half-million people insured by one of the health co-ops that have shut down in 11 states over the past few months. It also includes people whose insurer decided it simply couldn’t afford to sell Obamacare coverage anymore. That’s what happened in my home state, Wyoming, where the company WINHealth is dropping out of the exchange entirely. In some states, plans are changing dramatically even if the company remains. A patient may find that her longtime doctor will no longer be a part of her plan’s network. Maybe the hospital nearest to her home is no longer included by her insurance. These kinds of changes can leave people with very different coverage than they had before. As people work their way around the website, they may notice that the remaining options are slimmer than ever. Analysts at the Robert Wood Johnson Foundation say that more of the choices will be HMOs this time around. That can mean narrower networks and no out-of-network coverage.” (Washington Times, 11.1.15)
  • ‘Simple Choice Plans’ To Debut In 2017 Marketplace Enrollment. “Aiming to make picking a plan easier, the federal government, which runs the marketplaces in roughly two-thirds of states, is encouraging insurers to offer ‘simple choice plans’ as an option this fall… at each of the bronze, silver and gold levels, and three more silver options for people who qualify for cost-sharing reductions based on their income. In these plans, the deductibles and annual limits on out-of-pocket spending will be standardized, as will many of the consumer payments for medical services… Offering both standardized and non-standardized plans can present a challenge for consumers, say experts. Both need to be clearly differentiated online or consumers will have no easier time comparison shopping than before, said Sabrina Corlette, research professor at Georgetown University’s Center on Health Insurance Reforms who coauthored a recent report examining state efforts to offer standardized plans. ’It’s really important to get the consumer shopping experience right, otherwise you might as well not bother’ with standardized plans, she said.” (Kaiser Health News, 9.2.16)

Operational Problems

First Year Health Exchange Rollout Glitches

Flawed Design of Federal Enrollment Web Site

Problems Related to Enrollment

Problems Related to Data Security

Problems With Exchange Subsidies

Calls for a “Public Option” Remedy

  •  Instability in Marketplaces Draws Concern on Both Sides of Health Law. “In applying for rate increases in 2016, many insurers filed data showing that they had lost money on their exchange business in 2014. To stop the losses and control costs, many have increased premiums and deductibles and other out-of- pocket costs, while reducing the number of doctors and hospitals available to consumers through their provider networks… But liberals draw a different lesson from insurers’ troubles. ‘With the news that United Healthcare may drop coverage, it’s further proof that we need to implement a public option,’ wrote Representative Jan Schakowsky, Democrat of Illinois, last week in a post on Twitter. Harvey J. Rosenfield, the founder of Consumer Watchdog, an advocacy group based in California, suggested that ‘maybe the government should step in and run the system as Medicare for all.’” (The New York Times, 11.27.15)
  • Yes, the Public Option is a ‘Trojan Horse’ to Destroy Private Health Insurance. “There are a great many obvious reasons to oppose the public option. Perhaps the most neglected reason to oppose it is that the people arguing for the public option aren’t telling the truth, because what they really want is not a publicly funded insurance plan that’s serves as an alternative to private insurance. They want to crowd private insurers out of the marketplace altogether, leaving the government as the sole provider of health care, a.k.a. a ‘single-payer’ system. Despite the obvious evidence that this is what they want, they insist that the public option is some sort of sensible middle ground and not the radical proposal to destroy private insurance that it is.” (Weekly Standard, 8.24.16)

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