Are State-Run Marketplaces Ready to Be Financially Self-Sustaining?

In less than 2 months the health insurance Marketplaces will need to be financially self-sustaining, which will occur through a variety of approaches.

Since states began setting up their insurance Marketplaces, the Affordable Care Act (ACA) has provided more than $4 billion in start-up funds. However, the fund will dry up on January 1, 2015. State-based marketplaces, including those on the federal platform, will no longer have access to federal establishment funds, industry experts wrote in a Commonwealth Fund blog post.

“To determine an adequate level of funding, marketplaces must weigh key factors including their overall operating budget, enrollment estimates, and the projected premiums on which any assessments will be based,” the authors wrote.

Most states will go the same route as the federal Marketplace and institute user fees on plans sold. HealthCare.gov will be financed by a monthly user fee of 3.5% of premiums for plans sold through the marketplace. For 2015, state assessments of monthly fees range from 1% to 3.5%.

However, funding the Marketplace through such mechanisms will mean that enrollment levels will be critical. California will charge a per member per month (PMPM) fee of $13.95 in 2015, the same as charged in 2014. However, Nevada’s fee will increase from $4.95 in 2014 to $13 in 2015.

With funding tied to PMPM fees or a percentage of premiums collected, enrollment levels during the open enrollment period will be a key indicator of success. According to the authors, funding will likely affect the level at which states fund Marketplace functions such as consumer assistance and outreach.

“With billions of federal dollars now invested in launching them, state-based marketplaces face significant pressure to implement sustainable funding mechanisms next year that will allow them to operate independently,” the authors wrote.