Surcharges to Pay for Health Insurance Exchanges

Federally-run health insurance exchanges as well as some some state-run exchanges will be paid for using insurance premium surcharges, not separate taxes.

by / December 3, 2012

With less than two weeks left for states to announce their plans for implementing Health Insurance Exchanges (HIX), how to pay for them has become a focus of the discussion. Several Republican governors have cited high costs as a deterrent for establishing state-run exchanges, opting instead to utilize federally-run exchanges. Officials in California, however, say their state-run exchange, the country's largest, won't cost taxpayers anything, according to a report in MedCity News.

California's HIX will be financed by surcharges on the billions of dollars of insurance packages sold through the exchange. The surcharges are expected to range from two to four percent. "When California formed its exchange, we said it will not now or ever be a burden on taxpayers," Peter Lee, executive director of the California Health Benefit Exchange told MedCity News.

Federally-run exchanges, which will be established in states that decide not to set up their own exchanges, will also be paid for with surcharges on insurance purchases, capped at 3.5 percent. To encourage states to run their own exchanges, the Obama administration has awarded more than $2 billion in start-up funding and extended plan submission deadlines more than once.

States estimate annual operating costs ranging from $15 million in small states to $300 million in California. Despite initial federal assistance, all funding for exchanges must be covered by states by 2015. A key component of the Affordable Health Care Act, Health Insurance Exchanges continue to be a divisive issue at the state level.