Extras on Excise: D.C.’s Proposed Assessment—A Test Case for Funding Exchanges Under ACA?


The District of Columbia and other states that established insurance exchanges under the Affordable Care Act (ACA), were aided by federal funds for the first few years. But the ACA requires all state-run exchanges to be self-sustaining beginning Jan. 1, 2015. 

To raise the funds to meet this requirement, District of Columbia Mayor Vincent Gray is reviewing a bill thatallows the city’s Health Benefit Exchange Authority (HBX) to continue assessing a fee on all health carriers doing business in the city for an additional 225 days. On June 3, the D.C. Council unanimously approved the bill, the Health Benefit Exchange Authority Financial Sustainability Temporary Amendment Act of 2014, extending emergency legislation already in place. 

The assessment, expected to be around 1 percent, will apply to all health carriers with direct gross receipts of $50,000 or more doing business in D.C., even if a carrier does not participate in D.C.s’ health care exchange, D.C. Health Link. Revenue generated from the assessment will fund D.C. Health Link’s $28 million proposed FY 2015 budget. 

HBX lauds the assessment as the funding option that is the “most fair” way to pay for D.C. Health Link's operations, while having the least effect on premiums. If only those plans sold through the exchange were taxed (about 45,000), a 17 percent per-enrollee assessment would be necessary, drastically increasing the price of premiums. 

Some insurers are objecting to the assessment because federal law prohibits them from participating in the exchange. They also argue that it is unfair to tax carriers not participating in the exchange as a way to pay the costs of operating the exchange when they receive no benefit from it. 

But others counter that an assessment is warranted on all carriers because they will benefit when they sell supplemental coverage to consumers participating in the exchange. “Insurers who benefit and profit—not the taxpayers—should pay [to fund the exchange],” said Mila Kofman, executive director of HBX. 

The bill is subject to a 30-day congressional review period once it receives approval from the Mayor. Once approved by congress, the legislation is in effect for 225 days, while the D.C. council enacts a permanent version.

HBX is looking at mid-July for the first assessment because it needs funds before FY 2015 begins Oct. 1. HBX adopted emergency regulations at their June 11 meeting establishing an appeals process for carriers who dispute the amount they have been assessed (not whether they should be subject to the assessment).   

The District of Columbia may be opening itself up to a legal challenge and “such action may be necessary in order to . . . forestall broader detriment to the District of Columbia insurance market and its citizens,” according to the American Council of Life Insurers. 

Insurance carriers have not taken legal action yet, but the next few months will be the time to see if D.C.'s unique exchange funding plan survives and what the reaction of carriers and consumers will be. 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is it fair for all health insurance carriers to pay the assessment even if they do not participate in the health care exchange?

For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library. 

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