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Pennsylvania Featured in New Report about States Moving from Federal- to State-based Health Care Marketplaces

October 11, 2019

Pennsylvania is one of six states examined in an Urban Institute report published yesterday examining an increasing trend among states: a shift from federal- to state-based health care marketplaces. Under the ACA, states may choose either a federal, a state, or a hybrid model to operate their health insurance marketplaces.

HAP supported Act 42 of 2019, which allows Pennsylvania to set up a state-based marketplace (SBM) as soon as January 2021. 

The report, “States Seek Greater Control, Cost-Savings by Converting to State-based Marketplaces,” found that as of August 2019:

  • 17 states use “HealthCare.gov”—the federally facilitated marketplace (FFM) platform
  • 17 states employ a state partnership marketplace (SPM)—i.e., the state conducts plan management and consumer assistance; federal government manages remaining functions
  • Five states manage a state-based marketplace using the federal platform (SBM-FF)—i.e., state is responsible for all marketplace functions, but federal government manages eligibility and enrollment
  • 11 states plus the District of Columbia operate an SBM—i.e., the state is responsible for all aspects of marketplace functions, including eligibility and enrollment, but many more are expressing interest in adopting this structure

The report authors reviewed documents (authorizing legislation and marketplace board materials). They also interviewed 22 state officials, insurers, consumer advocates, insurance brokers, and navigators from Pennsylvania, New Jersey, Nevada, New Mexico, and Oregon to identify how and why SBMs are gaining in popularity.

While acknowledging the challenges of a shift to a solely state-based marketplace structure, the majority of interviewees reported that the benefits outweigh the risks. Key among anticipated benefits are the cost savings, including the 3.5 percent user fee premium that the federal government charges Pennsylvania and other FFM states. In fact, user fees across the five states during 2018 alone totaled nearly $183 million; Pennsylvania topped that list at $98 million.

The promise of greater efficiency was another common theme. State officials believe they can employ a full SBM “better and cheaper” than the federal government by using lower-cost technology and managing through a smaller bureaucracy. In turn, this would enable states to expand coverage to more residents.

The report documents Pennsylvania’s intention to direct some of the cost savings into a reinsurance pool to compensate insurers for extremely high cost enrollees. This action would moderate premiums in the individual market—which one insurance interviewee called a “huge, huge positive.”

Indeed, most officials across the five states believe the move to an SBM provides insurers with more certainty about their costs. The report also notes that “officials and stakeholders alike believe an SBM will enable more control over their insurance markets in the midst of an evolving federal policy environment.”

Additionally, interviewees anticipate “many immediate operational benefits, such as a better experience for consumers, insurers, and consumer assistors.” States with SBMs also will have greater access to real-time enrollment data, which state officials reported they will use to improve marketplace operations, outreach, and the consumer experience. They also plan to use SBM data to inform future policy decisions by, for instance, developing predictive models to better understand market factors, or integrating marketplace and Medicaid data to better predict and address churn.

State officials recognized potential risks of the shift to an SBM, such as inconsistent federal policies and potentially unproven information technology (IT) systems—which were particularly challenging for those states that initiated SBMs during 2014. However, the report noted that lessons learned from early adopter states will help newcomers to the SBM structure avoid common IT pitfalls and even share IT strategy.

For additional information about Act 42 of 2019, contact Jolene Calla, HAP’s vice president, health care finance and insurance. For information about the report, contact Sari Siegel, HAP's vice president, health care research.

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