As a continuation of our previous analysis describing the implications of HHS’ recently released Proposed Notice of Benefit and Payment Parameters (NBPP) for 2020, we have done a deeper dive into one of the NBPP’s biggest proposed changes: the decreased user fee rates on exchanges.
Background on Exchanges:
The amended Patient Protection and Affordable Care Act requires exchanges (also known as marketplaces) to be set up in each state. A state has three options in who administers its exchange. First, it can choose to establish its own state-based exchange (SBE). Second, the state can elect to have the Department of Health and Human Service (HHS) establish and administer its exchange as a federally facilitated exchange (FFE). Third, the responsibility can be shared between the state and the federal government in a state-based exchange using a federal platform (SBE-FP), where a state has an SBE but uses the federal healthcare.gov platform.
Background on User Fees:
To raise funds for the exchanges it administers wholly or in part, the HHS charges a monthly fee on each insurance carrier that sells a plan through an FFE or an SBE-FP. According to the Congressional Research Service, the fee is a percentage of the value of the monthly premiums the issuer collects on exchange plans in a state. HHS updates the percentage annually through the Proposed Notice of Benefit and Payment Parameters (NBPP).
Decrease in User Fees:
For the past five years the FFE user fee rate has remained a constant 3.5%. For the 2020 benefit year, via the NBPP for 2020, HHS has proposed lowering the FFE user fee rate from 3.5% to 3.0%. For the past three years, the SBE-FP user fee rate has increased from 1.5% to 3%. For the 2020 benefit year, the HHS has proposed lowering the SBE-FP user fee rate to 2.5%.
To give a more tangible picture of the decreased rate’s impact, we have run a calculation of how much Texas, an FFE state, would have saved based off its 2018 premium numbers if the user fee had decreased from 3.5% to 3.0%. All numbers come from CMS’ 2018 Marketplace Open Enrollment Period Public Use files. Applying the 3.5% user fee rate to Texas’ 2018 premium numbers leads to a total of $263,881,912. Applying the 3.0% user fee rate to Texas’ 2018 premium numbers leads to a total of $226,186,498. Subtracting these two numbers leaves Texas with an astounding total savings of $37,697,416 just by virtue of half of a percentage point change.
Reasoning for the Decreases:
In the NBPP 2020, the HHS says the decreases reflect their estimates of premium increases and enrollment decreases for the 2020 benefit year. Seema Verma, the Administrator for Center for Medicare and Medicaid Services (CMS), said, “Following the first-ever drop in premiums for plans sold on the federal exchange for 2019, in another first CMS is proposing to reduce the exchange user fee charged to insurers to fund exchange operations. Reducing this user fee will reduce the premium each consumer pays in 2020. Under President Trump’s leadership, we’re finally moving the exchange and the market in a new and positive direction.”
The decreases came after Democrats in the legislature wrote a letter in early January to Verma and Alex Azar, Secretary of the HHS, questioning the collection and expenditure of user fee dollars.
The Democrats wrote, “Given the agency’s clear intent to undermine enrollment in the market places by reducing funding… it is unclear why CMS continues to charge states… a 3.5% user fee. Considering the significant reductions in spending on outreach and enrollment, and a likely increase in total user fees levied (due to the increase in total monthly premiums), we are concerned about whether these additional dollars are being spent efficiently, legally and effectively for their intended purpose.”
According to Health Affairs, commentators expect the FFE user fee rates will decrease over time, given the decrease in outreach and education by CMS. Harking back to our Texas calculation, it is worth considering how much more money states could save if rates did continue to decrease over time.
Some leaders in the Exchange space are wondering whether the state should be added as an intermediary in the payment of user fees. Issuers currently pay their fees directly to HHS. In order to give states more of a stake in the amount of money being collected, the states could collect the payments from the issuers and transfer them to HHS. While this could add another layer of bureaucracy, it would also have states feel the burden put on their health insurance carriers. A state can implement their own Exchange for far less than the 3.0%, which in turn, would result in lower premiums for their constituents.
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