When federal “venture capital” runs out, how will states keep exchanges going?
Right now, many states are still focused on improving the consumer experience of their health insurance exchanges.
But starting soon, states will focus on a new hurdle: Making the exchanges a self-sustaining operation.
State-run exchanges have been faring well, and much of their start-up costs were covered by federal grants. Maryland, for example, received $173 million to build the Maryland Health Connection.
In 2015, all Federal grants and funding streams for Affordable Care Act-mandated exchanges will expire, but states are required to continue providing services for consumers.
“The cost of building it, the system, the infrastructure, the overhead, people making decisions and monitoring results, virtually all of that is being paid for with federal money,” said Kevin Walsh, senior vice president and managing director, Eligibility and Insurance Exchange Services, Government Healthcare Solutions at Xerox.
States can prepare now, while they still have federal funding, to cover these costs and even achieve profitability in 2015, he said.
“The product we sell in an exchange is various types of health insurance,” Walsh said. “Consumers can qualify and enroll in Medicaid, the Children’s Health Insurance Program, apply for subsidized insurance, apply as a small business.”
Central to making the exchange more sustainable will be reducing overhead costs and improving the product in the eyes of the consumer.
Tip No. 1: Use the coming year to ensure the marketplace, call center and other related elements are working at peak efficiency, and identifying enhancements that reduce operating costs.
States should focus on increasing website capacity so it can handle more traffic, invest in voice response units for call centers to cut down on personnel costs, and set up more email, chat or social media kinds support mechanisms for customers.
“Revenue comes from an administrative fee from selling new products,” Walsh said. “Think of it like a surcharge.”
Generally, exchanges may keep two percent of premiums on the plans they sell, and that should be the budget for running the exchange.
“That includes two percent of dental or vision premiums, two percent of pet insurance, whatever it is you offer,” he said.
Offering more diverse products should increase sales.
Tip No. 2: Increase coverage volumes by offering health insurance for dental and vision, or introduce options not related to health care – like home and life insurance – on the marketplace.
“2014 is the year of fine tuning your business,” Walsh said. State exchanges will tally how many people enrolled compared to general goals for first-wave enrollment. How the real numbers measure up to expectations will affect 2014 planning.
Some “perks” serve to attract customers even if the exchange can’t keep a percent of the return.
“Gym memberships or wellness programs work like perks for the products. They help grow enrollment,” Walsh said.
“You probably can’t keep two percent of that, but you attract more traffic and more buying,” he said, comparing the deal on gym memberships to a Groupon offer.
Tip No. 3: Advertising relevant services like gym memberships or rebate-wellness programs to generate revenue.
An added bonus of perks like gym memberships, acupuncture or chiropractor coverage: They help attract a younger, healthier crowd. Everyone has heard the alarms about “adverse selection,” an upwards rate spiral if too few young, healthy Americans sign up, making the covered pool older and sicker.
Youth-oriented perks and marketing strategies, like advertising through a sports team instead of a drug store chain, help target that audience, Walsh said.
As for what happens in 2015 if an exchange hasn’t reached sustainability? Even experts haven’t really thought that far ahead.
“It’s likely people would lobby for retaining a higher percentage,” Walsh said. Failing that, rates could go up.