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Carolina Journal News Reports

Feds: Exchange Cost To N.C. = Zero

Reported $181 million would come from Obamacare charges to insurers

Feb. 15th, 2013
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RALEIGH — Published reports that North Carolina must pay $181 million to the federal government annually as a consequence of failing to set up a state-run health exchange under Obamacare are false, leaving a spokesman for the U.S. Department of Health and Human Services unable to explain the misinformation.

“The costs are covered by us” at the federal level, said Fabien Levy, public affairs spokesman at HHS in Washington, D.C. That is the agency overseeing implementation of the federal Affordable Care Act.

“States wouldn’t be on the hook for anything” if they opt to choose a federal exchange, Levy said. “I don’t know where this $181 million comes from.”

A story published Thursday by the Raleigh News & Observer reported that the “state will pay the federal government $181 million annually to run the [federal] exchange.” The story did not cite a source for that figure or explain what the expenses would be, leaving an implication that the money would come from the state’s General Fund.

Instead, that figure can be traced to an analysis done by the state Department of Insurance, estimating fees that would be assessed to private insurance companies, rather than state taxpayers.

“Insurers would pay $181 million in fees to fund the operation of a federal exchange,” said Kerry Hall, spokeswoman for the Insurance Department. “The insurers would pass those costs on in some form to consumers. … It’s not state dollars.”

Proposed rules the federal government issued in November “indicates that a federal exchange would charge insurers who are participating in the exchange 3.5 percent [monthly] for premiums,” Hall said. That money would be used to pay administrative costs for the Obamacare exchanges, and the percentage is subject to change by HHS.

The state plugged that 3.5 percent number into previous cost-projection studies that estimated the number of uninsured people in North Carolina who would be required to purchase insurance under Obamacare, Hall said. From that, analysts determined overall fees paid by the insurance market would be $181 million.

“We’ve also done some analysis with the best information that is available” to determine how much it would cost to operate a state-based exchange, Hall said. “It might be closer to $90 million or $100 million, so roughly half the cost of a federal exchange.”

However, she acknowledged, “It’s a fuzzy estimate, but from everything we’ve seen we’re confident it would be less than a federal” exchange, and the state did its best to analyze cost differences.

“There really are too many unknown factors to come up with a great number” because of the many ways a state exchange could be designed, differing levels of customer service in each state, and what individual state governance would be, Hall said. “It’s not an apple-to-apple comparison, so you have to take our estimates with a grain of salt.”

Hypothetically, she said, a state-run exchange could use the same approach in affixing fees on insurance companies that take part in the online marketplace that would be established. Obamacare mandates that uninsured people must buy insurance. Those not eligible for Medicaid under Obamacare’s expanded income guidelines would buy policies from the exchange.

States also could appropriate money through their general funds or raise revenues by placing advertising on the online exchange, Hall said. The source of money would depend totally on how the state exchange was set up.

Had North Carolina pursued a state-operated exchange, the state Insurance Department would have administered the program. On Jan. 17 the federal government awarded grants of $12.2 million and $73.9 million to establish the exchange.

However, Gov. Pat McCrory and legislative leaders have decided to kill a federal-state exchange partnership approved by outgoing Gov. Beverly Perdue just before she left office.

The House and Senate passed bills this week prohibiting creation of a state exchange or expansion of Medicaid rolls. Minor differences in the bills are being worked out before a final measure is sent to McCrory to sign. To date, 26 states have opted not to form a state exchange.

Meanwhile, a new survey conducted by American Action Forum of major health care insurers found that “sticker shock” would hit health care insurance premium payers in 2014 as the Affordable Care Act is implemented. Premium costs for young and healthy people will increase an average of 169 percent, while costs for older, sicker individuals will decrease an average of about 25 percent, according to the survey.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.