State health insurance exchanges mandated in the health care reform law — assuming they survive court challenges to the law — are getting federal funds to launch but must be self-sustaining afterward.

To succeed, the exchanges will have to find alternative sources of funding by 2015. The reform law, note authors of a new report from consulting and information technology services firm Computer Sciences Corp., "doesn't provide much guidance for this requirement, and given the fiscal uncertainty of state and local budgets, it seems unlikely that the federal funding will be replaced by pubic revenue from local sources."

Charging user fees to individuals and small employers using the exchanges would be problematic.

"Under current and foreseeable market conditions, either purchasers nor suppliers have the appetite or ability to absorb more cost into health insurance premiums," according to the report. "From a policy and public relations perspective, it will be almost impossible to charge purchasers directly for using the exchange."

Consequently, an exchange that charges additional service fees without reducing costs in some other area "will be a major failure for health reform," the authors contend. And it will be difficult for insurers — required under the law to spend no more than 15- to 20% of premium dollars on administrative expenses — to pay fees to exchanges.

That means the exchanges must develop value-added services for insurers beyond electronic eligibility verification and benefit determination, according to CSC. Delivering online coverage rating and quoting, seamless enrollment/renewal, premium billing/reconciliation and account management, among other services, will bring administrative efficiencies for which private insurers will be willing to pay.

And with such services, "exchanges can become an administratively efficient sales channel for suppliers," says Jordan Battani, a principal researcher at CSC and co-author of the report, available here.

Goedert is the news editor of Health Data Management, a SourceMedia publication.

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