As they struggle to become financially stable, state-based health insurance marketplaces are lagging behind the federally-facilitated marketplace and are likely to continue to do so in the near future.

Despite improvement efforts, it is safe to “say that the experience for issuers on the public exchange has been challenging,” said Scott Rathke, vice president of government relations at Tampa, Fla.-based Health Plan Services, a third-party administrator which works in the FFM and eight state-based marketplaces. “Pretty much from the get-go, while the marketplaces have been improving, you still have lots of nuances and problems.”

The states often lag behind the federal exchange. Looking at his company’s data, the error processing rate for exchanges Health Plan Services was involved in was 0.80% on the federally-run exchange, compared to 3.05% in the states they work in.

Also see: 2016 election to have big impact on public, private exchanges

“While CMS blazes trails and sets policy, the states are often lagging a little bit behind that, and have some liberty to make decisions on their own,” Rathke explained.

Among the major challenges at the state-based marketplaces is the fact that they are being built as they are being used. Rathke said many roadmaps were not available when the exchanges started, so issuers were forced to come up with manual solutions and to make decisions at the same time.

They also lacked guidance. “Sometimes regulations came out late, sometimes there [weren’t] regulations,” he said. “Sometimes they came in a Tuesday afternoon call … and if you weren’t on the call, you missed it.”

Also see: Broker participation in federal exchanges nearly doubles

Many of the state-run exchanges further lack a technical roadmap. While the FFM originally lagged, they have “done a good job now so health plans can focus a little and strategize on the next implementation,” Rathke said. “In the state-based marketplace it is a grab bag. Some are doing a good job and some are not presenting the information.”

Both the state- and federally-run marketplaces continue to fall below expectations in financial reconciliation. “That is largely a spreadsheet process, which is a little scary when you look at the dollars flowing through the public exchange world,” he said.

Change drive

To overcome these challenges, some states are considering changing the models from state-based to  federally-facilitated.  In March 2015, 11 states had bills to propose moving to a state-based exchange, while at the same time 10 had bills to block such a move. Many of the bills existed in the same states, Rathke said.

The major driver behind all these changes is financial sustainability of the exchange. More than half of the state-based exchanges are struggling financially, Rathke said, largely due to:

  • Enrollment different from projections, such as in Hawaii, Nevada and Washington;
  • premiums different from projections, such as in Connecticut;
  • assessment scope and levels, where consumers pay a fee to use the exchanges, in Colorado, Connecticut, Kentucky, Maryland and Washington D.C.; and
  • state government involvement in New York and Vermont.


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