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Colorado Sets Its Exchange Fee

The price of policies in Colorado’s health insurance exchange will include a 1.4 percent fee to help fund exchange operations.

The state’s exchange board voted to enact the fee Monday. Board Chairwoman Gretchen Hammer characterized it as lean compared with the 3.5 percent fee the federal government is expected to tack on to policies sold in states that are not setting up their own exchanges.

States establishing their own exchanges are getting federal grants to set them up and start operating. But that money runs out in 2015, when state exchanges are supposed to be self-sufficient.

Colorado’s exchange board estimates it will need $22 million to $24 million annually to function. It’s pitching the fee as one several “balanced revenue sources” to meet those expenses. Others could include “donations” from insurance plans in exchange for tax credits, and temporarily redirecting the fee Colorado carriers now pay to fund the state’s high risk insurance plan. The state is closing the plan in 2014, when the Affordable Care Act’s mandate that health insurers can no longer deny anyone coverage for pre-existing medical conditions goes into effect. The exchange board is also asking lawmakers for a portion of any funds remaining in the high risk plan once all claims have been paid.

The state law establishing Colorado’s exchange prohibits using any state tax money to fund its operations. The state’s high risk pool is funded by an assessment on insurance carriers, and exchange staff say using that potential revenue stream would not violate the law.

The board is also looking at selling ads on the exchange website and contracting with other states to help their exchanges enroll and serve customers to generate operational revenue.

Exactly how much revenue the fee on policies or any of the other proposed funding streams will generate is unknown, making it hard to budget for 2015. The model the state used to calculate the fee assumes 136,300 Coloradans will enroll in the exchange in 2014, generating $6.4 million, ramping up to 300,000 enrollees generating $21.2 million in fee revenue in 2017. (It’s estimated that about 800,000 of Colorado’s 5 million residents are currently uninsured.)

“It’s all a guess at this stage in the game,” said exchange CEO Patty Fontneau, referring to 2014 enrollment estimates that range from 77,000 to 240,000 people. “We have modeled it, we have looked at other states. We’ve modeled it multiple times in Colorado. You could make an argument for higher or lower. I think [the estimates] are as good a guess as I we can get at this point in time.”

Only one member of the board voted against the fee. (Three board members who are insurance company executives either did not participate in the meeting or abstained from voting). Emergency medicine physician Mike Fallon, a conservative appointee to the board, says the fee, plus redirecting carriers’ contributions to the state high risk plan, constitutes “double hitting” them.

Colorado Association of Health Plans representative Mark Reece told the board “it does look like a double dip,” but that plans also recognize they’ll benefit from Colorado having an exchange. More Coloradans with health coverage, he said, will mean less cost shifting of unpaid bills from the uninsured to policyholders.

“Looking at the cost is just one side,” said Board Chairwoman Hammer. “Plans also get a new customer base,” many of whom will get federal subsidies to help them buy policies they couldn’t afford previously, she said.

This story is part of a collaboration that includes Colorado Public Radio, NPR and Kaiser Health News.