Questions Raised About Fees Charged to State Exchanges

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By Sara Hansard

Dec. 9 — Leaders of two House committees Dec. 9 asked the Obama administration to explain why it allows states with failed Affordable Care Act health insurance exchanges to continue to collect user fees.

Hawaii, Nevada, New Mexico and Oregon, which were originally set up to be state-based marketplaces, had significant technological difficulties operating their websites and are now using the federally facilitated marketplace (FFM) platform, said the letter to Andrew Slavitt, acting administrator of the Centers for Medicare & Medicaid Services. The letter was signed by House Ways and Means Chairman Kevin Brady (R-Texas), Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-Ill.), House Energy and Commerce Chairman Fred Upton (R-Mich.) and Energy and Commerce Oversight and Investigations Subcommittee Chairman Tim Murphy (R-Pa.). The four states cumulatively received more than $700 million in exchange establishment grants from the federal government, the letter said.

“Most Qualified Health Plans (QHPs) using the FFM system pay a 3.5 percent user fee on plans sold on the exchange to offset the administrative costs of the FFM,” the letter said. “However, CMS appears to allow the state exchanges using the FFM system flexibility to set and collect user fees sold in their respective states. CMS has apparently allowed at least two of these states (Oregon and Nevada), to retain 100 percent of the fees they collected. Essentially, this allows Oregon, Nevada, and any other state with this particular arrangement, to use the FFM for free while pocketing user fees charged to QHPs in their state for their own use.”

Costs Paid by All Taxpayers

The cost of the fees will be paid by all taxpayers, including those not using, as part of a $629 million appropriation requested by the CMS for fiscal 2016 to cover the FFM's expected user fee shortfall, the letter said. “Notwithstanding CMS's inability to control its own spending on the FFM, it is deeply troubling that CMS would opt to reward states with failed exchanges that cost taxpayers hundreds of millions of dollars in wasted establishment funding by allowing them to keep fees designed to fund FFM operations,” it said.

The CMS recently outlined a proposal for assessing a 3 percent fee on state exchanges using, reflecting the Department of Health and Human Services' actual costs of running the exchange, the letter said. It referred to the agency's Notice of Benefit and Payment Parameters for 2017 proposed rule released Nov. 20 (225 HCDR, 11/23/15).

However, the proposed fee wouldn't go into effect until 2017, “allowing these states to continue using the FFM for free for a year or more,” the letter said. In addition, the CMS is considering reducing the fee assessed to 1.5 percent to ease the administrative burden for the states, it said.

“For 2016 and possibly beyond, these proposals will continue to allow states like Oregon, which wasted more than $300 million building a failed exchange, to collect fees from plans sold on the federal exchange while contributing nothing to the administrative costs of running,” the letter said. “Ultimately, taxpayers will likely be required to bear the cost.”

Questions at Dec. 8 Hearing

At a Dec. 8 hearing by the Energy and Commerce Oversight and Investigations Subcommittee on the state exchanges, Slavitt was questioned by Rep. Markwayne Mullin (R-Okla.) about fees paid by the four state marketplaces, which are classified as federally supported marketplaces (236 HCDR, 12/9/15).

In determining the fee for the four states in the notice of benefit and payment parameters proposed rule, “The first thing we had to do is determine how much is the appropriate amount to pay given that the state maintains a lot of responsibilities,” such as operating call centers and collecting tax information, Slavitt said in response to Mullin's questions. Information technology only accounts for 30 percent to 50 percent of the cost of operating state exchanges, he said.

In 2016 the fee is being waived for the four states, Slavitt said at the hearing. The 2017 fee for the four states will be set to “even the tables,” he said.

The Dec. 9 letter asked Slavitt to respond to requests for more information on the fees by Dec. 22.

To contact the reporter on this story: Sara Hansard in Washington at

To contact the editor responsible for this story: Janey Cohen at