UPDATE: Here's a stupid question about HealthCare.Gov's budget...

2018 MIDTERM ELECTION

Time: D H M S

According to this article from last May, the total budget for operating HealthCare.Gov, the federal ACA marketplace/exchange which covers 39 states,was around $2.1 billion in 2016. Donald Trump proposed slashing the budget down by about 20% to $1.7 billion in 2017.

Where does that money come from? Well, HealthCare.Gov, the federal ACA marketplace/exchange which covers 39 states, is not funded out of the general federal budget. Instead, it's funded by assessing a 3.5% premium surcharge on policies sold on it.

OK, that's not quite true; the 3.5% only applies to the 34 states which are fully operated by the federal exchange; there are 5 states (Arkansas, Kentucky, Nevada, New Mexico and Oregon) which have their own exchange operations but "piggyback" on HC.gov's technical platform; those states were charged just 1.5% of premiums in 2017 and 2.0% for 2018. However, those 5 states combined only make up around 5% of all HC.gov enrollments, so the lower fees only knock perhaps 2% off the total user fee revenue.

In 2017, the average unsubsidized premium for people enrolled via HealthCare.Gov was $476/month, or $5,712 per enrollee per year. 3.5% of that is $200 per year.

According to CMS, the average effectuated enrollment per month across those 39 states was 7,545,188 people for the first half of 2017. That likely dropped a bit more over the second half of the year to around 7.5 million even. That means HC.gov's total 2017 revenue from the premium surcharge should have been around $1.5 billion. I presume the rest of the funding came from the general HHS Dept. budget.

For comparison, in February 2015, the Washington Examiner reported that these fees made up about 70% of the cost of operating the exchange at the time...but that was based on considerably lower premiums and lower average monthly enrollments (around 4.1 million in 2014 or 7.0 million in 2015), so it seems to me that those user fees should be generating more than enough to make HC.gov fully self-sufficient by now.

But it gets even more curious: For 2018,average unsubsidized premiums for the individual market increased dramatically...by somewhere around 29% overall...and even higher, around 32% for the HealthCare.Gov states specifically. Of course that assumes that every 2017 enrollee renewed their exact same policy for 2018, which obviously didn't happen. Many people's premiums were impacted due to carriers changing or dropping plan offerings, pulling out of or entering states, and people upgrading/downgrading from Silver to Gold or Bronze policies. Still, my guess is that the average full-price premium still shot up by at least 25%.

That should mean that the average HC.gov premium is around $600 or so per month in 2018. The 3.5% surcharge hasn't changed for 2018, which means the federal exchange should take in something like $252/year per enrollee. Total enrollment in HC.gov plans was down 5% this year, so I'll assume average effectuated enrollment will be as well...somewhere around7.13 million per month. That means ~$1.8 billion in HC.gov revenue directly from the premium surcharge.

All of this brings me to my question:

  • Last summer the Trump administration announced that they were slashing their advertising budget by 90%, from $100 million to just $10 million.
  • They also announced that they were slashing $23 million out of the navigator/outreach program for open enrollment.

That means they cut HealthCare.Gov's total budget by $113 million.

So my question is this: Where exactly did that money go?

For that matter, assuming HC.gov is set to bring in $300 million more this year, but doesn't plan on reinstating that $113 million for advertising/outreach, doesn't that mean they should be profiting by over $400 million? Again, if so, where is that money going?

Also, what about 2019? If average premiums do end up increasing another 20 - 30% next year, but exchange enrollment doesn't drop substantially, shouldn't that mean HC.gov will rake in an additional $450 million?

If this money is all going back into the HHS Dept's general fund, I guess that's OK...or, if they announce that they're lowering the 3.5% surcharge down to 3% or 2.5% or whatever to shave a few bucks off of the unsubsidized premiums, that's fine as well (although I'd rather they reinstate the ad/outreach funding).

However, according to the Proposed HHS Notice of Benefit and Payment Parameters for 2019 Fact Sheet...

FFE and SBE-FP User Fees We propose to maintain the user fee rates at 3.5 percent of premium for FFEs, and propose to set the user fee for SBE-FPs at 3.0 percent of premium for the 2019 benefit year. This represents an increase for SBE-FP states from 2.0 percent established for the 2018 benefit year.

Yes, that's right--not only is HC.gov going to keep charging 3.5% of premiums for the 34 states which are fully handled by the federal exchange next year, they're actually increasing the fee for the 5 "piggybacking" states by a point. In fact, this fee increase is exactly what is leading Nevada to move off of HC.gov onto their own exchange next year.

Anyway, I'm not making any accusations here (although with the Trump Administration, you just never know). It just seems like a reasonable question to ask.

UPDATE: I've been informed that a portion of HC.gov's expenses can't be paid for by the user fees because they're legally considered "inherently governmental functions"...and that those functions amounted to around 30% of total spending when Slavitt was quoted back in 2015. Presumably those costs are more locked in year to year, so that could be higher or lower as a percent of the total budget as time goes on.

Average unsubsidized premiums for exchange enrollees increased around 8% in 2016; it's reasonable to assume that IT/support center/etc. costs increased by about that amount as well, so I don't see anything unusual for that year...but again, they went up around 22% in 2017 and another ~30% or so this year, but HC.gov enrollment has only dropped by around 5% each year. That means the user fee revenue should have increased by something like 40% or so from 2016 - 2018.

Since HC.gov appears to have been "breaking even" on their portion of expenses in 2015-2016, this suggests that either their total budget has also been raised by ~40% (which makes little sense given the $113 million ad/outreach cuts and Trump's pushing for a 20% overall cut) or they have several hundred million dollars extra lying around somewhere...or that the extra money went elsewhere.

It'd be nice to know the answer to this mystery.