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KPMG: Idaho health insurance exchange would cost $77 million to implement, $10 million annually to operate

KPMG: Idaho health insurance exchange would cost $77 million to implement, $10 million annually to operate

Idaho Freedom Foundation staff
October 10, 2012

Idaho could spend tens of millions of dollars to establish a state health insurance exchange, according to an analysis by KPMG, an international accounting and professional services firm.

But what Idaho would receive in return, beyond a website where people can buy and compare insurance plans online, remains ambiguous.

Members of Gov. Butch Otter's task force studying whether to create a state health insurance or be handed one run by the federal government got an official price estimate Tuesday. Representatives from KPMG told the task force that Idaho would spend approximately $77 million to design and implement its own state exchange, with recurring operational costs estimated to be $10 million annually.

One panelist asked KPMG representative Andy Gottschalk what, precisely, Idaho would be purchasing if it spent the projected $77 million to establish its own exchange.

“It’s hard to explain exactly what you get,” Gottschalk replied. “It’s hardware, it’s software, there’s infrastructure, there’s people and staffing. There would likely be a call center. It’s all kinds of things, but it’s hard to be specific.”

Each state must have an insurance exchange of some description under the federal health care reform law, generally referred to as Obamacare. Looming is a Nov. 16 deadline to notify the federal government of Idaho’s preference. Then the option selected is supposed to be operational by Oct. 1, 2013.

If Idaho allows the federal government to handle development and operation of an exchange, costs were estimated by KPMG at $5.1 million for an initial setup with no recurring annual costs, while a “hybrid” approach—in which some functions would be shared by state government and the federal government—would cost the state an estimated $15.5 million in setup and $1.7 million annually.

The ambiguities surrounding the insurance exchanges, in both cost and function, have caused some states to swear off creating their own, task force members were told Tuesday.

Bruce Greenstein, secretary of the Louisiana Department of Health and Hospitals, told the Idaho task force that Louisiana has chosen not to create its own statewide exchange.

“There is really no way to effectively estimate the state’s costs for creating an exchange and the provisions in the law are vague,” he said. His associate, Carol Steckel, added that “we view this law as a ‘one size fits all’ effort that cannibalizes the private insurance markets. It doesn't work for us here in Louisiana.”

Jonathan Hurst, a policy advisor in Texas, described the insurance exchange mandate as a “logistical and administrative nightmare, and 90 percent of the rules that will govern these things have yet to be written.” Hurst said that Texas is not pursuing a state exchange, noting that there are “too many risks and unknowns” in the law.

Arkansas, however, has chosen a different path: Cynthia Crone, who heads up the exchange program in Arkansas, and Jay Bradford, commissioner of the Arkansas Department of Insurance, explained that Arkansas is pursuing the hybrid, or partnership, approach to its exchanges. Bradford noted that “the feds will levy a fee for their services, and your people will pay for it in the price of their insurance.”

The task force, consisting of Idahoans from both governmental and private sector fields, was established by the governor to advise Otter on the insurance exchange question. The group is scheduled to meet again in late October, when it will likely finalize the recommendations for Otter.

Note: Wayne Hoffman, executive director of the Idaho Freedom Foundation, is a member of the governor's task force. IdahoRep0rter.com is published by the Idaho Freedom Foundation.

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