In the recent King v. Burwell decision, the U.S. Supreme Court said that the federal health benefits exchange can provide Obamacare premium subsidies. Given this, it may be time for Colorado officials to shut down the Colorado exchange and let people use the federal one.
In 2012, the Colorado exchange predicted that its 2015-2018 expenditures would be $22 to $26 million. The exchange’s 2015-2016 Strategic Plan and Budget now predicts operating expenses of $53 million in fiscal year 2015 alone. Going forward, operating expenses are predicted to be about $45 million a year with 78 employees. By the end of 2015, the exchange will have also consumed over $272 million in public start-up funds.
The budget projects deficits of $4.5 million in FY 2016 and $3.7 million in FY 2018. In 2016, planned revenues will come from an administrative fee of 3.5 percent of premiums for all policies sold in the exchange, a Broad Market Assessment fee of $1.80 per member per month on every insurer in the state, and $2.5 million in funding from Colorado Medicaid.
In 2015, two items will account for an estimated 20 percent of the Colorado exchange’s operating budget. An enrollment “assistance network” of nonprofits will receive $6 million for producing far fewer enrollments than insurance brokers, and the exchange will spend $4.8 million advertising its monopoly.
If Colorado moves to the federal exchange, people who use it to buy policies would still pay the 3.5 percent administrative fee. Everyone else would be relieved of the $19 million-plus in “fees” levied on every policy in the state. Colorado Medicaid might save $2.5 million.
Though Colorado exchange costs are higher than predicted, its benefits are lower. When the exchange hired Gruber and Associates to predict enrollment in 2011, officials estimated that 470,000 lives would be covered by subsidized policies in 2016.
As of June 2015, only 126,159 people had paid a first month’s premium for exchange health insurance. Of that number, just 72,000 were eligible for federally subsidized policies when they applied.
The Spark Institute surveyed 6,068 people who purchased coverage through the Colorado exchange in the first half of 2014. Only 10 percent of them reported being previously uninsured. If correct, it means that the Colorado exchange has covered between 7,200 and 13,000 previously uninsured people, less than 2 percent of the Coloradans said to have been uninsured prior to Obamacare.
Most of the people receiving the subsidized policies used them to replace private coverage. In the exchange’s 2014 Annual Report, “Libby and her husband” say they were previously insured through Colorado’s public employee retirement plan. But the subsidized PERA coverage “was expensive.” Thanks to the exchange, she “can see my doctors without paying a fortune.”
Colorado exchange performance remains poor. In 2014, the State Auditor found serious deficiencies in exchange financial controls, including at least $15 million in contract overpayments.
Colorado Public Radio reported that 10 percent of those who buy coverage through the exchange end up stuck in bureaucratic snarls that take months to unravel.
This year, 9News reported that the software canceled 3,600 policies when people browsed other plans. After denying that the exchange knew about the problem, exchange representatives said that they knew about it but “didn’t think that it would happen and happen at this level with this group of people.”
Compared to the exchange, the state’s high-risk pool, CoverColorado, was a bargain. When it closed at the end of 2013 it covered enrollment and subsidies for 13,670 people with uninsurable pre-existing conditions—with 8.5 full-time equivalent employees at a total annual cost of $57 million.
Colorado exchange advocates should explain, in detail, why Colorado taxpayers need to continue subsidizing a costly underperformer. Switching to the federal exchange would provide the same subsidies without new taxes on everyone’s health coverage.
Linda Gorman is health care policy center director at the Independence Institute, a free market think tank in Denver.