The latest draft of regulations released by the Obama administration proposes administering a ‘user fee’ on the insurers that plan to market their products through the Federally Facilitated Exchanges (FFEs). The twenty-one U.S. states that refused to set up a State-based Exchange and the five others that are currently electing for a State-Federal Partnership Exchange would be playing host to federal exchanges.
Starting in 2014, the ‘assessment’ or ‘user fee’ fee will be charged monthly at 3.5 percent of the monthly premium amount levied by the insurer for a particular plan. Therefore, the final monthly amount will vary from one insurer to another, depending on the number of consumers that enroll in a specific health policy through the marketplace. Still, this cut into each insurer’s pockets may leave insurers wanting to raise premiums to make up the difference.
Interestingly, the proposal to charge user fees is not unusual. The Section 1311(d)(5)(A) of the PPACA mandates State-based Exchanges to ordain measures for becoming self-sustaining by January 1, 2015 post which the federal grants would no longer be available. As exchange administrators, the federal government is authorized to charge user fees or initiate similar financing measures, if implementing such a step is deemed imperative for continuing exchange operations.
In July 2012, The Commonwealth Fund identified that eight U.S. states and the District of Columbia have devised definite strategies to make their insurance exchanges financially viable. While California is considering levying a fee on all the Qualified Health Plans (QHPs) sold through the exchange, the District of Columbia is planning to impose a fee on all the QHPs sold either inside or outside the Exchange. Connecticut, West Virginia, Hawaii, and Oregon intend to collect a tariff from insurers. Maryland is developing a structure to charge licensing fees, assessment/user fees, and other regulatory fees from exchange participants. Nevada and Hawaii are willing to accept grants, financial contributions, or gifts from exchange proponents to sustain the health insurance exchange operations.
Taking a cue from the States’ recommendations on securing financial sustainability, the federal government is considering replicating the design in federal exchanges as well. The Department of Health and Human Services (HHS) has also indicated that the user fees may be reviewed at a later stage when the number of enrollments in the exchanges grows.
While the Obama administration stresses that insurers will benefit from the fees as it would help build insurers’ product credibility, the insurance industry fears that the new exchange rule would increase their administrative costs. It is difficult and too early to predict exactly how this statute will impact various exchange partisans. One can just wait and watch as the scene unfolds.