Bookmark and Share

October 2012 St@teside

Sustainable Funding for Health Benefit Exchanges

The Affordable Care Act (ACA) requires each state to identify a long-term funding source to finance the operations of its health benefit exchanges (HBE) once federal establishment grant funding is no longer available at the end of 2014. Several states are giving serious consideration to the potential revenue options in preparation for the 2013 legislation session. 
The Washington Health Benefit Exchange Board recently recommended that the state’s HBE be funded by a 1 percent premium tax on the revenues of all fully insured products sold in the state. Several important considerations informed their analysis:
  • Many states are considering whether a health insurance premium tax or other surcharge should apply only to those products sold on the exchange or if they should be applied to all plans sold in the market. The Washington HBE Board noted that a tax that only applies to HBE products makes their revenue source much less predictable because it is difficult to accurately predict participation in the HBE. In addition, an across-the-board assessment eliminates the incentive for plans to avoid offering products in the HBE so they can avoid the assessment.
  • The level of funding required is closely tied to the HBE’s expected expenses. The Washington analysis includes a spreadsheet of expected expenses which estimates an initial funding need of $50 million in 2015. They estimate the per-member per-month cost at $13.69 in 2015; $11.95 in 2016; and $10.74 in 2017.
  • The one percent assessment on health plan revenues will begin in the second quarter of 2014 so they can be held in reserve for 2015, which is the first year the HBE will be fully self-sustaining.


The Maryland Health Benefit Exchange Act of 2012 established a joint legislative and executive committee to develop a report and recommendations to the governor and General Assembly on the financing mechanisms which should be used to enable the exchange to be self-sustaining by 2015. A recent analysis for the Maryland Health Connection outlined various revenue models to finance operations of the exchange, and the strengths, risks and trade-offs that must be considered with each model. The report evaluated the following models:

  • QHP Issuer Surcharge based-assessment applied to issuer’s entire enrollment or only exchange membership;
  • Broad-based revenue assessments on carriers, hospitals, or other providers; and
  • Other public funding sources.
While the report did not specifically recommend a model for the state to pursue, it did develop two broad methodologies—a single market approach and a hybrid approach—for consideration. 
The report recommended that Joint Committee not pursue the following two options:
  • Assessment solely on issuers of QHPs exchange enrollees
  • Funding solely through a public fee
The Finance Work Group of the Minnesota Health Insurance Exchange Advisory Task Force analyzed several funding source options in preparation for an Advisory Task Force meeting this week. The options they discussed include:
  • A per-member, per-month user fee;
  • A portion of premium revenue for plans sold inside the HBE;
  • A portion of the premium revenue across the fully insured market;
  • A broad-based health care tax (like a provider tax);
  • A “sin” tax (with a demonstrated public health benefit);
  • An appropriation from the general fund or the Health Care Access Fund (unique to Minnesota); and 
  • Other (grants, advertisements, naming rights, etc.).