The board of the Colorado health insurance exchange has set a fee of 1.4% to add to policies sold in the exchange. While that seems pretty low, let’s hold on a minute. This fee by itself will not generate enough revenue to pay for the operation of the exchange.

The exchange is going to be looking for other fees, one of which is the current assessment placed on all Colorado health policies which help pay for the existing high risk pool coverage (CoverColorado).

In addition, they will be looking for other revenue since the law enabling the exchange prohibits the use of general fund monies to pay for the exchange. In all, they estimate that $22-$24 million per year will be needed to run the exchange. I thought it telling that absent other fees proposed, the exchange will probably need to charge a bit less than 3.3-3.4%. Note that neither this nor the federal fee (3.5%) are flat fees — the progressive nature of this will mean those with higher premiums will pay a lot more. It seems to me that this could have a disproportionate impact, such as on those with large families, but not necessarily high incomes.

In addition, the article quotes the executive director of the exchange as saying that this is all a guess — give her credit for candor and transparency. Estimates of the number of Coloradans that will use the exchange, in this author’s opinion, are not only optimistic, but extremely aggressive. The models used to establish the cost analysis do not seem to account for the possibility, several say probability, that premium costs will be substantially higher than they are today, thereby keeping people away from purchasing coverage, opting to pay the much lower penalty instead.

Finally, keep in mind that there is no assurance that all health care plans will participate in the exchange, although this low fee may be something of a sop to incentive plans to join. Even so, if the costs of plan in the exchange are so high, that even with subsidies, people choose to either not buy coverage or buy coverage at lower costs outside the exchange, the exchange budget will suffer.

As we say — MTC! (more to come)

Here’s the link::