This year, New Jersey and Pennsylvania made the transition from Federally Facilitated Marketplaces (FFM) to State-based Marketplaces (SBMs). They joined 13 other SBM states plus the District of Columbia with their own state governance and technology when administering their Affordable Care Act (ACA) health insurance marketplaces. Another six states are categorized as State-based Marketplaces on the Federal Platform (SBM-FP), combining local control while leveraging the federal healthcare.gov technology platform.
Why did New Jersey and Pennsylvania make the transition? There are many benefits of state-based exchanges. We’ll examine those benefits below.
A Brief History of SBMs
First, a brief history of SBMs. Central to the ACA’s vision of affordable health care, individual health insurance exchanges were conceived as a place where insurers would compete to deliver qualified health plans. There was some debate about what these marketplaces would look like. Some hoped for a uniform program nationwide with a single marketplace. Others wanted states to have independent marketplaces to deliver more flexibility. As a compromise, states were given the choice of creating their own marketplace or leveraging the federal governments’ exchange. FFMs and SBMs were born.
At the outset of the ACA most states considered an SBM. But ultimately only 16 plus D.C. signed on for their own. Unfortunately, many technology rollouts failed, forcing states back into the federal marketplace in 2014 or 2015. By 2016, the federal platform served as the technology platform for 39 states. Since then, states have been slowly transitioning to state-based exchanges, many for the four benefits outlined below.
Not Subject to the Vacillating Federal Priorities
Transitioning from Obama to Trump to Biden has been a bit of a whirlwind for states in the federal exchange. After the Obama administration passed the ACA, one of the Trump administration’s first acts was to attempt a repeal. When that failed, the Trump administration cut the consumer assistance budget for enrollment by almost 90%, terminated cost-sharing reductions in 2017, and didn’t open Special Enrollment Periods during the spring when the pandemic hit and most SBMs did.
Biden, meanwhile, ran on a platform of strengthening the ACA. He has already opened a Special Enrollment Period and is considering additional subsidies and increasing promotional budgets.
That political whiplash can cause enrollment to wax and wane and lend a lot of uncertainty to the market, potentially raising premiums. SBMs, meanwhile, generally have broad political support within their states. They are more likely to invest in technology, relationships with insurers and local agents and brokers.
Better Enrollment Outreach
Speaking of enrollment, states with SBMs can deliver more enrollment resources than their federal counterparts. For example, California’s state exchange, Covered California, has spent upwards of $120 million since 2014 — and $157 million in 2020 — on marketing and outreach.
Why does outreach spending matter? It has significant effects on enrollment as well as improving the overall health of the insurance risk pool, encouraging more insurers into the market and stabilizing or even lowering premiums. Which in turn increases enrollment.
For example, Covered California has achieved a take-up rate among subsidy-eligible individuals that’s nearly 25% higher than the average for FFM states. Plus, from 2016 to 2020, enrollment in the federal exchange dropped from 9.6 million to 8.3 million enrollees, while state-based exchanges have seen flat enrollment in the neighborhood of 3.1 million enrollees.
In addition to setting outreach budgets, SBMs also can better leverage local resources to encourage enrollment. They can build relationships with local carriers, agents, and brokers to target specific populations to encourage enrollment. That kind of targeted outreach is difficult to achieve as an FFM state.
Plus, FFM states don’t own the member data that makes understanding and targeting populations easier. Because members must opt-in to data sharing, in many cases, states are excluded from understanding as much as 25% of enrollees. SBMs still face the opt-in problem, but they’ll better understand how many failed to consent.
Better Integration with Other State Programs
Determining Medicaid eligibility for enrollees is an obvious interaction between a health insurance exchange and a state agency. Many SBM states have streamlined the Medicaid determination process. That could be as simple as ensuring their exchange agency is in the same department as their Medicaid agency to encourage collaboration or closely coordinating Medicaid determinations with the state exchange. For example, Rhode Island passes individuals ineligible for Medicaid but eligible for marketplace subsidies directly to their exchange.
Though it’s the most obvious, integrated Medicaid eligibility determinations aren’t the only potential integration point for an SBM. When COVID struck and unemployment spiked, another opportunity for states to promote insurance presented itself. Integrating unemployment benefits data with the state exchange could streamline the process, displaying insurance eligibility after residents apply for unemployment benefits.
The federal exchange can deliver Medicaid determinations or pass data to a state Medicaid agency to confirm eligibility, but deeper integrations that increase enrollment and improve a resident’s experience aren’t available to FFM states.
Better Ability to Innovate
Many states would like to offer some type of public option. Washington implemented a public option in their exchange this year, Nevada has studied a public option and Connecticut has a bill in its legislature aimed at a public option. Operating a state-based exchange makes it easier for a state to deliver innovative insurance products like public options.
But that’s not the only type of innovation a state can implement with an SBM. Some states have or want to implement state-level subsidies on the exchange. Others want to modify the health insurance fee structure that funds the exchange. Some would like to create new enrollment pathways — like automatic re-enrollment for residents. Whatever the case, states with SBMs have more flexibility to create innovative programs to test new ideas.
More Bang for the Buck
The federal marketplace charges insurers a 3% premium user fee for access to the exchange. Many states — especially those with large populations — feel transitioning to a State-based Exchange can help them deliver the preceding benefits at the same 3% cost to insurers. If they can lower those fees, premiums will likely drop even lower because insurers generally pass that expense to consumers.
The cost of technology has also dropped considerably since the initial launch of SBMs. Those initial deployments were mostly custom developed solutions by large software development firms. Since then, better software created specifically to address plan selection and enrolment and eligibility have entered the market. That software has a much lower price point, making it easier for states to cost-effectively implement technology.
States considering the transition will need to expend a substantial amount of political capital to do so, but moving to an SBM can improve enrollment, lessen volatility, and ultimately enable states to deliver better health insurance solutions to their residents.
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