Katie Kerwin McCrimmon

Colorado’s health exchange board approved administrative fees of 1.4 percent on insurance plans that will be passed on to customers to help fund the exchange.

If Colorado lawmakers do not back a proposed measure that aims to divert cash from Colorado’s high-risk health insurance fund — Cover Colorado — to the exchange to help cover their costs, those fees could rise to an estimated 3.4 percent.

Cover Colorado will no longer exist because the federal Affordable Care Act requires commercial health insurance companies to accept all customers, including those with serious health problems and pre-existing conditions. The high-risk pool is expected to have some remaining funds after it pays all its claims. The funds also came from consumers who paid higher health insurance rates to cover people who couldn’t get insurance.

Projected exchange fees of 3.4 percent are significantly higher than Colorado exchange managers had earlier promised. During their December meeting, exchange managers said they wanted to keep costs down for consumers and pledged that Colorado’s health exchange would cost significantly less to run that the federal government’s exchange. In fact, the federal exchange is charging fees of 3.5 percent to insurance plans. Those costs are also expected to be passed along to consumers.

“We are modeling against a worst case scenario in terms of expenses,” said Patty Fontneau, CEO and president of the Colorado health exchange.

In order to keep the exchange viable, Fontneau said managers would be aggressive in courting a variety of sources to pay exchange costs including federal grants in the first year, diverted funds from Cover Colorado and donations from private foundations.

“It minimizes the risk to the exchange as a whole if we have a mix of revenue sources,” Fontneau said.

Under federal health reform, states can decide whether to operate their own exchanges or simply default to the federal exchange.

Colorado lawmakers chose to set up their own. The health exchange — an online marketplace for insurance — is projected to cost $22 million to $26 million a year to operate and opens for business on October 1.

Board members on Monday also adjusted their policies about health insurance brokers, but concerns remain that consumers could be steered to health plans that benefit brokers financially.

The board voted that health insurance companies that pay commissions to brokers to sell their products to exchange customers will have to certify all brokers who sell insurance in the area where the company operates. But not all health insurance companies will have to use brokers.

So a consumer could potentially be working with a broker who will only receive a commission if the consumer picks a plan that pays brokers.

Customers of the exchange — anticipated to number about 134,000 in the first year according to the latest estimates — are likely to include people who have never had health insurance and may not understand what they are being sold.

Colorado Insurance Commissioner Jim Riesberg, a non-voting member of the exchange board, said he’s concerned about potential conflicts of interest.

“Your answer just bothered me more,” Riesberg told health exchange director Patty Fontneau when she tried to explain during a Monday meeting how brokers who sell policies for a limited number of insurance companies will operate.

“Wouldn’t they (brokers) then have some ethical dilemma to steer them to one of the other (health plans) where they could make a commission?” Riesberg asked.

Fontneau acknowledged there could be some problems, but insisted that there would be fewer potential conflicts of interest for exchange customers than for customers who buy insurance now.

“Is there going to be some steerage? Maybe,” Fontneau said.

Board members and Fontneau indicated that they might require brokers to disclose their financial arrangements to exchange customers. Exchange managers plan to certify some brokers to sell products on the exchange. But managers have not yet mandated transparent policies to protect consumers.

The only insurance industry executive on the board who was present at Monday’s meeting was Steve ErkenBrack, president and CEO of Rocky Mountain Health Plans. He recused himself from the vote saying he might have a conflict of interest, but by the end of the discussion, ErkenBrack said he, too, was troubled by the concerns Riesberg had raised.

He said it’s possible brokers who, for instance, are only certified to sell insurance for Rocky Mountain and Kaiser would not present consumers with information about other options.

“That’s the problem,” ErkenBrack said. “This is an exchange issue. Within the exchange we may need to supplement the disclosure requirements.”

ErkenBrack said that Rocky Mountain Health Plans previously did not pay any brokers to sell its products. Now the company uses some brokers. If insurance companies use any brokers, under the new policy they will have to certify all who might operate in their service area. It’s possible that some insurance companies could switch instead to an in-house sales force rather than using brokers.