Legislators Told State Can Run Exchange Cheaper Than Feds

A 3% charge on premiums would be enough to sustain a state-based health insurance exchange, which would be cheaper than one run by the federal government, legislators were told Thursday (Oct. 22).

At the Arkansas Health Insurance Marketplace (AHIM) Legislative Oversight Committee, AHIM Board Chairman Chris Parker said that, based on the current 60,000-65,000 insurance exchange members, 3% would be enough to sustain a state exchange. The exchange is an online marketplace created by the federal Affordable Care Act where individuals and small businesses can purchase health insurance. Arkansas ratepayers are managed by a federal exchange, healthcare.gov, that charges a 3.5% fee on all insurance premiums to pay for operating the exchange. Cheryl Smith Gardner, AHIM executive director, told legislators that the federal Centers for Medicare and Medicaid Services has said that figure could rise to 6-7%. A state exchange could replace that with a 3% fee.

AHIM is exploring the possibility of the state operating its own exchange for individuals. Supporters of a state-based exchange, including Sen. David Sanders, R-Little Rock, the committee’s chairman, say the state could operate the exchange more cheaply and have more control over insurance plans than if it relies on a federal exchange.

But Gov. Asa Hutchinson (R) has questioned if a state exchange is needed and has asked the AHIM board to pause its efforts until recommendations are made by the Health Reform Legislative Task Force, a group of legislators that will issue a report on health care reform by the end of this year.

The state will begin providing insurance for employees of small businesses with 2-50 employees through its Small Business Health Options Program, or SHOP, on Nov. 1. Hutchinson supports the SHOP.

AHIM Director of Operations John Norman told legislators the system has undergone four rounds of testing. Out of 920 test cases, 847 were successfully completed three times. Managed by the federal government, the SHOP serves only about 200 Arkansas small business employees, but Gardner said little outreach has been done. If the state maintains a state-based SHOP but not an individual exchange, it will have to find a way to fund it.

Sen. Alan Clark, R-Lonsdale, asked Gardner and Parker how the federal PACE (Protecting Affordable Coverage of Employees) Act affects the SHOP.  Signed into law Oct. 7, it defines employers with 51-100 employees as “large” but allows states to maintain their definitions in the small group health market. Under Arkansas law, a small employer is defined as one having 50 or fewer employers.

The committee on Thursday voted to increase the number to 100, but that would require a change in state law. According to Gardner, doing so would allow the SHOP to include more ratepayers and therefore make it more economically viable.