Virginia is poised to become the 14th state to create its own health insurance exchange via two bills working their way through both chambers of the General Assembly.

Filed on behalf of Gov. Ralph Northam, who endorsed new health care initiatives in a column last October, the legislation aims to stabilize the often-volatile health plan marketplace and funnel more money back to the state for outreach and enrollment efforts. Both bills follow the federal rollback of several key provisions of the Affordable Care Act, including a dramatic reduction in funding for groups that help consumers navigate and enroll in the federal marketplace.

Frustration over the cuts helped fuel bipartisan support for the two bills. The Senate version passed Feb. 7 on a 29-10 vote, with eight Republicans voting for the bill. Del. Glenn Davis, Jr., R-Virginia Beach, broke ranks with fellow Republicans last Tuesday to vote for the House version of the bill, which passed in a 56-44 vote.

“This legislation may not be perfect yet,” he said after the vote. “But I’d rather Virginians’ taxes stay in Virginia to create health care options that are better than what the federal government has provided through its exchange.”

The state exchange is part of a broader effort to improve Virginia’s insurance marketplace. Northam has also proposed a reinsurance plan, funded through higher tobacco taxes, which would offer more money to insurance companies to subsidize the cost of health care for their most expensive customers. In other states, reinsurance has lowered premium rates by nearly 30%.

Two complementary House and Senate bills would set new limitations on short-term limited-duration medical plans — health care originally designed as a stop-gap measure during lapses in coverage. The Trump administration recently rolled back limits on the plans, allowing carriers to sell them for longer periods and giving consumers a longer time to renew them.

But consumer advocates argue that the plans — which can discriminate based on preexisting conditions and often don’t cover essential benefits — are falsely marketed as primary coverage to unwitting consumers. Both bills, which each passed their respective chambers, would limit the availability of the plans to three months and restrict options to renew.

“This is a three-pronged approach,” said Freddy Mejia, a policy analyst for The Commonwealth Institute for Fiscal Analysis. “These three things together will hopefully provide a lot of relief for folks.”

What would the exchange bills do?

Both the House and Senate bills would establish a state-run health insurance marketplace through a new division within the Virginia State Corporation Commission. The state exchange, like the federal version, would focus mostly on enrolling uninsured or underinsured residents who aren’t covered by an employer-provided health plan.

Under both bills, Virginia aims to launch its exchange by Jan. 1, 2023, giving officials just under three years to fine-tune the rollout.

The bills don’t specify if Virginia would attempt to build its own enrollment platform or bring in an outside vendor, said Sen. Jennifer McClellan, D-Richmond, who sponsored the bill in the Senate.

Building a new platform would be a significant risk — and expenditure — for the state, especially given the botched rollouts of earlier state exchanges (and the federal marketplace). It’s unlikely the SCC would attempt to build the infrastructure on its own, said Doug Gray, executive director of the Virginia Association of Health Plans.

“It would be a disastrous endeavor to start from zero,” he added. “It’s a very complicated and challenging task that’s been refined over the last six years or so in the other states.”

Nevada and Pennsylvania, two of the most recent states to create their own exchanges, hired outside vendors to build their platforms.

Why create a state exchange?

Proponents of a state exchange say it would allow Virginia to collect fees that currently go to the federal government. Under the current structure, insurance companies in Virginia pay the federal government a 3% fee in exchange for running the health care marketplace. Those fees are passed on to Virginia consumers with few benefits for the state, said Del. Mark Sickles, D-Fairfax, who sponsored the bill in the House.

“At its root, we can take the same money that these health plans are giving to HealthCare.gov and provide better benefits than the federal government,” Sickles said. A report from a state workgroup on Virginia market stability estimated that the state would collect roughly $91 million in fees through its own exchange.

Those benefits include a navigator program to help customers find and enroll in individual health care plans. The Trump Administration recently reduced funding for health care marketing and navigation programs from $36 million to $10 million, all but eliminating full-time navigators in Virginia, according to a report from the workgroup. The state’s enrollment numbers have decreased correspondingly, especially among low-income residents, to an all-time low of 270,000 people.

It all ties back to the primary motivation for a state exchange: stabilizing Virginia’s health care marketplace. Low enrollment and rising costs pushed premiums to a high of just under $800 a month in 2019, according to the workgroup report. That number went down slightly this year, but Gray said the costs remain unaffordable for consumers who aren’t eligible for federal health insurance subsidies.

Proponents of the legislation hope a state exchange will offer more control over the marketplace and better tools to boost enrollment. States with independent markets can extend the annual enrollment period, fund outreach efforts and collect more information on consumers. Both the House and Senate bills would establish an opt-in box on state tax forms, allowing residents to indicate whether they were uninsured at the time of filing and share their tax information to determine eligibility for medical assistance.

The more people enroll, the better the chances of stabilizing premiums, Mejia said. States in the federal exchange have limited access to enrollment data. If Virginia collected its own information, the state could target outreach to uninsured residents who might be eligible for subsidies but haven’t signed up for the marketplace.

“It could help get the word out to people who have trouble accessing health care, whether for cultural reasons, linguistic reasons, or even younger people, who tend to be trickier to enroll,” Mejia said. “In other states — because they’re able to understand the populations they’re not reaching — they’re able to enroll more young, healthy people.”

A greater number of participants spreads the risk for insurers across a larger pool of people, bringing down rates for everyone.

The argument hasn’t swayed opponents of the bill, who say low enrollment is based on flaws in the exchange — not a lack of knowledge. Del. Kathy Byron, R-Bedford, who opposed the legislation before the vote in the House, said the bill would raise costs in Virginia without providing many improvements.

“This plan incorporates all of the shortcomings of the ACA and transfers them to the state,” she said.

“A decade after the ACA was enacted, we still believe there’s tens of thousands of Virginians who haven’t signed up for the federal exchange because they don’t know about it?” Beford added. “It’s not that they don’t know about it, it’s that they can’t afford it.”

What are the risks?

It might not lower costs. While analysis from the Commonwealth Fund suggests that premiums are lower and markets are stronger in states with their own exchanges, there’s the risk that insurers could leave the market if the state exchange doesn’t perform as well — or better — than the federal marketplace. Gray said that some states have continued to struggle with low carrier participation, including nearby Maryland, where only two insurers participate in the state exchange.

“State-based exchanges don’t necessarily lower the rate of premiums,” Mejia added. “In other states, they’ve been successful at containing the growth of the premiums, but that’s not necessarily the basis for the exchange.”

Neither the House nor Senate bill would establish an individual mandate for insurance — a key provision of the Affordable Care Act that was repealed by the Trump administration in 2017. When the changes went into effect last year, premiums soared across the country. In Virginia, individual rates rose by 5% to 10%, according to the state work group.

Four states with independent exchanges have also implemented an individual mandate. The policies are too recent to determine if the change was effective, but the Virginia work group pointed out that penalties could be used to fund the state’s reinsurance program.

Even with a state-controlled market, premiums and other out-of-pocket costs could continue to discourage enrollment. Gray said the vast majority of participants in the federal exchange receive subsidies that lower their monthly costs. Those subsidies are available to people making up to 400% of the federal poverty guidelines — about $50,000 for a household of one and $103,000 for a family of four.

“There just aren’t affordable premiums in the exchange right now,” he said. And if premiums don’t lower for residents above that threshold, there’s little incentive to enroll in the exchange. State-run markets offer more control, but reinsurance programs are key to effectively reducing and controlling rate increases.

What comes next?

The House and Senate still have to address the differences between both bills and pass a final version.

One of the main discrepancies involves the fees charged to insurance carriers. The House bill would charge a 3% fee only to insurers who participate in the state exchange. The Senate version would charge a fee to all insurers who operate in Virginia, regardless of whether they offer plans through the exchange. But the House bill would allow the state to raise those fees if it was deemed “necessary” to ensure the exchange was fully funded, while the Senate caps the payment at 3%.

Both bills would also establish a Small Business Health Options (SHOP) program, which allows small employers to offer insurance to their employees through the state exchange. But Gray said the VAHP — which helped draft the legislation — would prefer for language in the final version to reflect current federal guidelines. Those urge employers to establish SHOP exchanges through direct contracting with insurers.

“Historically, SHOP is rarely used and pretty ineffective,” he said. The program is only eligible to companies with between one and 50 employees, and employers are required to help cover the cost of premiums. The government does offer subsidies, but Gray said it’s difficult to qualify for them.

“Most employers will just go ahead and buy their own policies outside the exchanges,” he said.

A final concern for Gray and Mejia, involves the benefits that insurers are required to provide in plans on the state exchange. Both versions of the legislation currently require companies to provide an “essential health benefits package” — federal language that includes a set list of required services.

But this year, legislators introduced 12 different bills that would expand the state’s definition of essential services. Most were deferred for continued study, but required coverage could grow to include everything from fertility treatments to donated breast milk. Gray said that could become a problem if lawmakers end up passing bills requiring benefits that aren’t included on the federal list.

“Someone is going to need to figure out whether they should change the definition,” he said. Mejia added that the language could restrict Virginia consumers to fewer benefits, especially if the federal government cut services from its own definition.