Paying for the Federal Health Exchange

A little blurb came out a week or so ago (HHS sets new fees for insurers in federal exchange) that, to my surprise, didn’t seem to get that much attention. In the article, we find:

Running a federal exchange — especially such a large one — will come with major administrative costs, and HHS will charge insurers a fee to cover those costs. The fee will be pegged to the number of customers each insurer has in the federal exchange.

In 2014, insurers will have to pay HHS 3.5 percent of the premiums for each plan they sell through the federal exchange, according to Friday’s regulations.

Well, I guess 3.5% doesn’t sound like very much money. But, I did a little math that may surprise you.

This means that, using current premiums, the HHS will charge an average of $196.53 per individual policy sold on the Federal Exchange. By the end of 2014, the CBO expects that 8,000,000 people will obtain coverage on the Federal Exchange.

If this is true, this fee would generate an astounding $1.572 billion in revenues in 2014.

This is supposed to be fees to cover the cost of running this exchange. But, this kind of revenue is difficult to get your head around. Let me attempt to put it into some perspective. With $1.572 billion, you could buy (largest provider of health insurance online – 3+ million insured – $519M market cap). That would still leave about $1 Billion for some more employees, buildings and office supplies.

This amounts to an extremely large additional tax on largely lower income Americans (those most drawn to the exchanges) – soon to be required to obtain insurance coverage or pay penalties. Insurance companies have a mandated administrative and profit margins through the MLR rules – so, his fee must be passed along to end consumers.

I am amazed that no one seems to be talking about this.


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