Questions emerge about financing, long-term solvency for some state-operated health exchanges

The Associated Press

In this Dec. 31, 2013 photo, guides work the phone bank at MnSure, Minnesota's insurance marketplace in St. Paul, Minn.The 14 states running their own insurance marketplaces had their 2014 budgets footed by the federal government, but starting in 2015 were supposed to fund themselves. Most planned to do so with revenue derived from enrollments, but in states like Minnesota, the lagging pace of sign ups has thrown that into question. (AP Photo/Jim Mone)

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By PATRICK CONDON, Associated Press

ST. PAUL, Minn. (AP) — The 14 states running their own health insurance marketplaces had all their startup costs footed by the federal government, but they're supposed to pay for themselves starting next year under the federal health care reform law.

In several states, it's not clear whether it will work out that way. Projected enrollments are lower than expected, meaning the insurance surcharges designed to sustain the exchanges might not generate enough revenue in the years ahead without significant changes in the financing model.

Officials in some states are stashing away federal grant money to continue paying for operations beyond the January 2015 target date for financial self-sufficiency. Others are contemplating staffing cuts or boosting insurance surcharges.

To date, the 14 states operating their own exchanges, plus the District of Columbia, have received nearly $3.8 billion to start and operate their health insurance exchanges, according to a state-by-state tally by The Associated Press.

Several states already are considering options to stave off concerns about solvency:

— The exchange in California, which leads the nation in sign-ups, is setting aside $184 million in federal grant money to cover projected budget deficits through 2016.

— Rhode Island is asking for an extension to keep using federal grant money through the first half of next year, and lawmakers and business leaders have expressed concern that the state has no clear plan for paying for the exchange once that money runs out.

— Minnesota, Oregon and Washington are among the states pledging to sharply cut costs to remain afloat.

— Washington also is considering an increased tax on insurance companies as the state Health Benefit Exchange adjusts to a new funding reality, moving from federal grants totaling almost $150 million this year to $40 million allocated by the Legislature for 2015.

More will be known about the exchanges' financial outlook after a March 31 deadline for people to sign up for insurance or face federal tax penalties, and many states expect pickups in enrollment. But some states aren't waiting.

"What I've begun to do is look at what is actually an extremely conservative, very low-level enrollment and begin to develop a budget that could be supported by that enrollment without raising fees," said Bruce Goldberg, the interim director of Cover Oregon, the exchange in that state.

Goldberg is aiming for a 20 percent spending reduction to cover that state's enrollment shortfall.

In Minnesota, where exchange enrollment is at 85 percent of what once was a worst-case scenario, a recent internal analysis projected an 11 percent deficit in 2015 and 13 percent in 2016 if enrollment doesn't improve.

Officials of MNsure, the state's exchange, have vowed to cut costs to avoid seeking any money from the Legislature during an election year.

"It would be a very difficult issue to address at the Legislature," said Tony Lourey, a Democratic state senator in Minnesota who sponsored the bill that created the exchange.

A state audit of California's health exchange designated the agency "high-risk" because of uncertainty about sign-ups.

While Covered California expresses confidence about its prospects, Executive Director Peter Lee told state finance officials in December that "long-term sustainability of the organization" is its greatest vulnerability.

The 14 states and District of Columbia opted to build their own insurance marketplaces under the health care overhaul rather than use a federally operated system, which covers 36 states. Federal grants covered the cost of staffing and running the state exchanges, building the websites and marketing to customers.