Exchange bracing to slash $9 million

By Katie Kerwin McCrimmon

Colorados health exchange managers are bracing to cut expenses by about $9 million because federal sequestration is expected to axe 7.5 percent from a $125 million federal grant designed to help launch the exchange.

Exchange CEO and Executive Director Patty Fontneau said during a finance committee meeting this week that managers are expecting a 7.5 percent cut in the newest implementation grant. Fontneau said some programs might have to withstand higher cuts than others because managers have already signed some contracts for services or technology so they cannot spread the cuts evenly across all programs.

Sequestration started going into effect on March 1 and has forced automatic cuts to federal spending. Colorado exchange managers applied for the $125 million grant in May and Fontneau said the state could not have avoided sequestration unless exchange managers had applied for the additional grant funds in November, which she said was impossible. Colorado has received two previous exchange implementation grants for $18 million and $43 million respectively.

After spending more than $200 million to launch in its first years, exchange managers have vowed that the exchange will cost $22 to $26 million a year to operate.

Fontneau said federal officials warned exchange officials in recent weeks that sequestration would affect grants to states for health exchanges. Spokesman Ben Miller said federal managers are expected to give official word on the impacts of sequestration when states receive formal notice of their grant awards in early July.

Board members Robert Ruiz-Moss and Arnold Salazar declined to comment on the potential impacts of sequestration. Ruiz-Moss had pressed Colorado lawmakers to support the $125 million grant request in May.

Salazar had urged fellow exchange board members to seek more than $125 million in the latest round of grants, saying he worried that under-capitalizing the exchange could imperil its success.

Slated to open on Oct. 1, the exchange is an online health exchange market aimed at helping hundreds of thousands of Coloradans get subsidies for public and private health insurance.

Other board members including Mike Fallon argued in May that the $125 million request was already far too high. And Republican lawmakers who were members of the exchange oversight committee were furious in May when exchange managers came to them seeking approval just before the session ended.

Among the most upset was Sen. Ellen Roberts, R-Durango. She said she felt blindsided by the last minute, high-dollar request and while she had not voted for the health exchange, she was hoping it would be successful so that her constituents in southwestern Colorado could get help in finding affordable health insurance.

Roberts expects the exchange to be able to absorb the sequestration cuts more easily than an agency like the U.S. Forest Service, whose managers must endure cuts while fighting a rash of dangerous wildfires.

I dont think it will make a huge amount of difference, Roberts said of the sequester cuts. I had a hard time understanding how we would spend an additional $125 million in the first place. Weve gotten close to $200 million.

Roberts said the advertising budget was already huge and that she expected exchange managers would do fine spending less.

Consumer advocates, however, were already worried that spending on advertising and outreach was less than theyd hoped. Altogether with the federal grant and other funds, managers planned to spend about $15 million on outreach. Advocates initially hoped that number would be closer to $20 million.

Roberts said Democrats who controlled the exchange oversight board and who ultimately gave their blessing to the $125 million request argued that Colorado should fight for the money because if the state didnt, other states would get it.

I view it entirely differently, Roberts said. You dont take money just because someone else will grab it. The question is, Do you need it to make this function?

Were we just seeking $125 million because somebody threw out that number?

Roberts said she does not want to disparage Fontneau. Shes doing as good a job as anybody could. I just think she has an incredibly challenging task both in terms of policy and politics, she said.

I think they will figure it out. I dont think theres an alternative. We certainly dont have the money at the state to backfill that, Roberts said.

Among the major costs included in the $125 million request were:

  • $52 million for technology costs,
  • $10 million for customer service center infrastructure,
  • $13 million for customer service staffing,
  • $8 million for back office staff to handle manual processing that IT programs cant yet do,
  • $10.5 million for a customer assistance network,
  • $15 million for marketing and outreach campaigns and consultants.