WASHINGTON (AP) -- Health insurance companies will have to pay to play in new health insurance markets coming under President Barack Obama's health care law, the administration said in a regulatory notice issued Friday.
The Health and Human Services department is proposing a "user fee" amounting to 3.5 percent of premiums for health insurers who want to offer policies in new federal exchanges coming in 2014. The fee is to cover administrative costs of the new markets, which were designed to be self-supporting.
Exchanges are new online markets where consumers will be able to buy individual private policies and apply for government subsidies to help pay their premiums. About half of the 30 million people expected to gain coverage under the law will get policies in the new exchanges, and the other half will be covered under Medicaid. Washington will run the exchanges in states that decline to do so themselves.
The proposed administrative fee in the new exchanges would be higher than the 2 percent to 3 percent overhead commonly cited for running Medicare, a disparity that critics of the law were quick to point out. However, it wasn't immediately clear whether there's an apples-to-apples comparison between the exchanges and the giant government health program for seniors.
The insurance industry said Friday the fees will increase costs, already expected to rise because the new policies in many cases will be more comprehensive than what is currently available in the individual market. States will also charge administrative fees in the exchanges that they run.
"Any new fees to pay for the administration of exchanges will add to the cost of coverage," said Robert Zirkelbach, a spokesman for the industry trade group America's Health Insurance Plans. But he stopped short of condemning the surcharges, which ultimately will be passed on to consumers and taxpayers. Instead, he said the government should do everything it can to run the exchanges in an efficient manner.
"It is important to focus on reducing these costs by streamlining operations, avoiding regulatory duplication and utilizing the experience and expertise of health plans," Zirkelbach said in a statement.
Backers of the new approach say it's more cost-effective than the current system, which relies on brokers and sales agents to connect individually with consumers, who often find the details of their policies hard to understand. Indeed, some economists say insurance exchanges should lower overall administrative overhead.
The government says insurers will benefit in various ways from selling their policies through exchanges. For example, consumers will know that the policies they are buying meet basic standards set by federal and state regulators.
A recent PricewaterhouseCoopers study predicted the exchanges will be a huge new market for the insurance industry, with at least 11 million customers in 2104 and $50 billion in premiums. Six years later, as consumers gain confidence with the new system, the market will grow to at least 27 million customers and $190 billion in premiums, the study projected.
Obama's election victory assured that his health care overhaul would advance largely as designed. Starting in 2014, insurers will be required to accept all customers, even those with health problems. At the same time, virtually all U.S. residents will be required to carry coverage, either through an employer, a government program or by buying their own policies.
The industry and other parties have until Dec. 31 to comment on the proposed regulation.