If you’re a small business owner, you should probably be nervous about Washington’s SHOP Exchange.
To start, though, let’s clarify: we’re not talking about the individual exchange. Washington State’s individual exchange really works quite well, despite what many may think given the initial disaster that was Healthcare.gov.
We’re talking about the small business side of the Exchange, where things have not been going so well. And several reasons justify nervousness…
Reason #1: Difficulty Getting Insurers to Bite
A first reason? Too few insurers are participating.
In 2017, for example, most counties in Washington State won’t even be served by the small business side of the Exchange.
This is because UnitedHealthcare is exiting the Exchange, and up until now UnitedHealthcare was the only small business insurer the Exchange had for most counties (Clark and Cowlitz being the exception).
I’ve asked representatives of the Exchange what they attribute this to, and have really only gotten non-answers back like “well we’re having conversations with carriers…”
Poking around at Exchange meeting materials that are available publicly on its site, it sounds like what might be going on is that there are some major changes to the IT infrastructure of the site before a lot of insurers are willing to give this thing a try (maybe because the site needs to be better to lure more customers?)
Yes, I acknowledge that “sounds like what might be happening” is about as speculative as it gets, but until the Exchange leaders become a bit more forthcoming about what’s going on, we don’t really have much to go on.
However, if we’ve deduced correctly that this is the problem, then this is a bigger problem for Washington State small businesses for reasons #2, 3, and 4, which I’ll describe next.
Reason #2: Lack of Capital Reserves for Big Projects
Another reason to be nervous? A lack of adequate capital reserves—and a lack of a plan to acquire and maintain adequate capital reserves.
In a recent state auditor’s report, for example, one of the key recommendations for putting the Exchange on a path to sustainability was for the Exchange to establish a long-term financial plan, a working reserve, and a capital reserve.
We should note, for the sake of fairness, that the Exchange is working on this. The Exchange indicated in its response to the state auditor’s report that it has commenced work on establishing a long-term financial plan that includes developing a reserve, and is due to complete this work by December 31st, 2016. However, any efforts the Exchange makes to implement effective long-term financial planning are hampered by policies of the Legislature described in #3 and 4, below.
Reason #3: Legislature’s Spending Rules Stop the Exchange from Swiftly Investing in Needed IT Improvements
A third issue: the lack of support from the Legislature for continuous basic improvement in the information technology required to run a decent exchange. Which sounds crazy.
It is in the Legislature’s best interest to enable the Exchange to make certain improvements to its website as soon as it can, because many of these improvements accelerate the Exchange’s path toward self-sustainability. This is for two main reasons:
- Because it improves the customer experience, making it easier for the Exchange to find more customers and thus reducing the Exchange’s per member per month costs, and
- Because improvements such as fewer software bugs, better user interfaces, and additional features that allow customers to perform tasks themselves on the website reduce the need for spending on customer support.
However, in HB 1947 (2013) the Legislature tied the Exchange’s hands when it comes to implementing cost-saving IT improvements. Specifically, the bill states that the Exchange can only spend as much money as the Legislature appropriates to it. In addition, the bill includes a “sweeping provision” which states that the Legislature may transfer money from the Exchange’s account to the general account.
To illustrate: for the current biennium (2015-2017), the state budget does not, in fact, simply state that the Legislature will contribute $110 million to the Exchange. Instead, what it states is that the Exchange may not spend more than $110 million. Therefore, even if the Exchange were to successfully apply for a grant elsewhere, that grant would have zero impact on the Exchange’s ability to accelerate investments in IT improvements in the current biennium. Instead, the money would likely be swept into the state’s general fund.
This policy was ostensibly intended as a measure to hold the Exchange more “fiscally responsible.” However, in practice it creates a perverse incentive for the Exchange board to not seek out grant funding as a way to accelerate cost-effective IT improvements. This is because seeking out grants would require considerable effort while providing the exchange with no financial benefit. (I’ve even had representatives of the Exchange tell me that this is their thought process behind why they don’t bother pursuing grants.)
Reason #4: Legislature’s Sweeping Provision Makes Exchange Finances Unstable
And then there’s the “sweeping” issue, which maybe makes sense for a typical government program but not for an organization with the cash flow uncertainty of the Exchange.
What’s the issue here? Simple. The provision in HB 1947 authorizing “excess funds” to be removed from the Exchange’s account and placed in the Legislature’s general fund appears to complicate the goal of developing stable reserves. In fact, the auditor’s report specifically asked the Legislature to consider as part of the appropriation process “the Exchange’s long-term financial plan, its planned list of IT investments, its need for both working and capital reserves, and how sweeping those reserves adversely affects planning.” [emphasis added]
It’s worth emphasizing here that a big part of why this is so important for the Exchange is that both the amount and the timing of the Exchange’s cash inflows are uncertain. The amount is uncertain because much of the Exchange’s revenue comes from a 2% health insurance premium tax and assessments that the Exchange can charge insurers who sell plans through the website (almost a bit like a commission, to cover the Exchange’s operating costs).
Timing is uncertain because a large additional portion of the Exchange’s revenue comes from reimbursements from Medicaid for costs the Exchange incurs on Medicaid’s behalf. And, as awkward as this is to point out, according to the state auditor’s report Medicaid has a history of not paying its bills to the Exchange on time.
This is the whole reason the Exchange needs a working reserve (and why, as small business owners, we need to be thinking about liquidity, too). If projected revenues come in a little lower than expected, the Exchange needs some cushion so it knows it can keep the lights on and the servers running. Ditto for if Medicaid pays a bill a few months late. So how nerve-wrecking is it that the Exchange could do the responsible thing by building up an adequate working reserve, only to see the Legislature sweep it all away because some state legislators think that reserve is “excess funds”?
These things are all fixable. And to the extent that the Exchange’s leaders have the power to, they seem to be putting a lot of work into trying to fix it.
However, the Legislature still has some things it needs to do if it really wants to get this program working. It needs to change the Exchange’s enacting legislation to remove counterproductive policies such as the appropriations rules and the sweeping provision, and replace these with constructive policies.
Examples of constructive policies the Legislature could enact include:
- Requiring the Exchange to have a long-term financial plan that includes provisions for a working reserve and a capital reserve.
- Requiring the Exchange to prepare a report for the Legislature explaining why they’ve had such trouble inducing insurers to participate in the small business side of the Exchange, and what their plan is to fix it.
- Requiring the Exchange to conduct ongoing user interface studies, including studies of how efficient and intuitive it is for the typical user to work with both the individual and SHOP portions of the website.
- Requiring the Exchange to conduct ongoing surveys among Washington residents and small business owners on features they would like to see included as part of both the individual and SHOP portions of the website.
We’re keeping up to date on developments with the Washington SHOP Exchange, and will post updates to this blog as they become available. Stay tuned.
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