Republican state Senator proposes idea to pay for Medicaid expansion by helping other states run health exchanges

Amid debate about how the state will pay for its portion of the Medicaid expansion through the Affordable Care Act, a Republican state Senator is proposing that the state use its successful system operating Kynect to set-up and run exchanges for other states.

The plan, put forth by state Sen. Ralph Alvarado, would charge states a lower fee than what is charged for the federal exchange. The revenue collected through the operation would then be used to pay for Kentucky’s portion of the state’s Medicaid expansion.

Currently, all Kentucky insurance policies have a 1 percent assessment fee, which funds Kynect. If the system were dismantled and the federal exchange took over, this fee would increase to a 3.5 percent federal surcharge on insurance policies.

Carrie Banahan, Executive Director of state-based health exchange Kynect, testified in front of the Budget Review Subcommittee on Health and Human Services Thursday to answer questions about the potential cost if Kentucky were to dismantle the current state-based exchange and move to the federal run exchange, a point of contention in the Governor’s race.

Banahan told committee members that when Kentucky was deciding whether to operate a state-based exchange or a federal exchange, many groups including the Kentucky Chamber of Commerce, the Kentucky Hospital Association and insurers voiced support for a state run exchange as it would allow Kentucky to determine the benefits and services provided, as opposed to the federal government. She also stated that a state-run exchange allows Kentucky to have flexibility to use the Affordable Care Act for the benefits of Kentuckians.

Banahan noted that Kynect is known nationwide as the model for how an exchange should be set up and operated and that many other states are utilizing the Kynect IT system to help implement their exchanges.

Many questions have been raised concerning the budget for Kynect. Banahan told the committee that the Operating Budget for 2016 would be a little over $26 million, none of which comes out of the state’s general fund.

If the next Governor decided to dismantle Kynect and move to the federal exchange, Banahan testified that Deloitte Consulting estimated it would cost the state $23 million in IT work and take at least 9 months to complete the transition. Federal regulations require states choosing to relinquish operation give the federal government at least 12 months’ notice before dismantling.

The steps to decommission an exchange include:

• One year advance notice to Health and Human Services
• Modifying IT system code to de-intergrate Medicaid and exchange application and eligibility processing.
• Build new application and account transfer connection to the federal exchange for Medicaid
• Re-test system changes, new IT builds and file transfers.

A question of great debate in the legislature and the upcoming Governor’s race has been what it would cost to operate a federal exchange rather than a state based exchange. Chair Sen. Ralph Alvarado asked Ms. Banahan if the budget for Kynect for 2016 is $26 million, how much it would be for a federal exchange. Ms. Banahan did not have the answer to this question, but noted that currently all insurance policies have a 1 percent assessment fee, which funds Kynect. If the system were dismantled and the federal exchange took over, this fee would increase to 3.5 percent.

Chair Alvarado noted that since Kentucky is the model for how an exchange is set up and operated, he asked about the possibility of selling our services to set up and operating exchanges for other states.

Ms. Banahan said that this would be allowed under the law. Chair Alvarado then told committee members about the idea, which he says Governor Beshear has been briefed on and favors, where Kynect could set up and operate exchanges in other states for a smaller fee than charged by the federal government. With the profits from this operation, that money could be directed to pay for Kentucky’s portion of Medicaid expansion. Ms. Banahan said that it would require additional staff, service, etc. but could potentially be a possibility.