Republican senator suggests expanding Kynect to other states to help pay state's coming share of Medicaid expansion

By Melissa Patrick
Kentucky Health News

While the Republican nominee for governor says he would dismantle the state health-insurance exchange branded as Kynect, a GOP senator is talking about not only keeping it, but expanding it to other states to pay for the other big feature of federal health reform: expanded Medicaid.

Sen. Ralph Alvarado of Winchester made the suggestion at a legislative committee meeting where Kynect Director Carrie Banahan said it would be "disastrous" to move Kentuckians to the federal Obamacare exchange, as Republican gubernatorial nominee Matt Bevin has said he will do if elected.

Sen. Ralph Alvarado

Alvarado, a physician, said his concerns about Obamacare in Kentucky are mostly monetary because the state will have to start paying 5 percent of the Medicaid expansion costs in 2017, rising to the reform law's limit of 10 percent in 2020.

"We are looking at about a little over one billion dollars to find between 2017 and 2021, and we are going to have to find a way to pay for that," Alvarado said, noting that around $250 million will be needed in the two-year budget that begins July 1, 2016. "I'd like to find a way that we are going to pay for that."

Democratic Gov. Steve Beshear, who expanded the Medicaid eligbility ceiling to 138 percent of the federal poverty level, cites the prediction in a state-funded study by Deloitte Consulting that the expansion will add a net $820 million to the budget through 2021 by adding more patients to the health-care system, generating jobs and tax revenue. Republicans remain skeptical.

Alvarado suggested that Kynect become a regional exchange and charge other states for its services, using the profit to pay for the expansion.

"There are states that want a good state exchange, but haven't been able to run one. And there are several that are about to expand Medicaid and are looking at the federal exchange," he said. "So my thought was, why not approach those states that are going to expand Medicaid, offer to do the same services that a federal exchange would do, and run the exchange for them for a fee?"

Alvarado said that he is "not a supporter of Obamacare" or the way Beshear implemented it without legislative involvement, but "The Supreme Court has made its decision, it is going to be here," so he said that as a member of the Senate and its budget committee, he would offer his concept and move forward.

"I've been encouraged that there has been bipartisan approval of all this so far," Alvarado said. "I haven't had anyone say, that is a bad idea." He said Beshear Chief of Staff Larry Bond had called it a "novel idea."

Banahan said of the idea, "It took lots of planning and discussion for us to create this state-based exchange and to determine whether we should embark on creating a regional exchange is not as simple as it seems. It is not something we could move on quickly." There are no regional exchanges, but the law provides for them.

Rep. David Watkins, D-Henderson, said, "I think that his proposition surely should be looked at, but I think it would be looked at much more favorably in the context of our new governor intending to keep Kynect, rather than dismantling it."

Alvarado raised the idea at the Thursday, Aug. 27 meeting of the Budget Review Subcommittee on Human Resources, where Banahan, executive director of the Kentucky Health Benefit Exchange, gave a presentation.

Her advice: "Do not dismantle Kynect. We have one of the best exchanges in the nation. We have received all kinds of awards. Other states seek our advice. Even the federal exchange calls us for advice. Other states are utilizing or want to utilize our IT code . . . and we are self-sustaining. It would be disastrous for Kentuckians if we moved to the federal exchange."

Understanding Kynect

Under the Patient Protection and Affordable Care Act, states were given the choice of joining the federal exchange, creating a state-based exchange or using hybrid options to create an online marketplace to shop for health insurance.

Kentucky chose to create its own exchange on the advice of hospitals, insurance companies and other business interests, Banahan told the panel. "Kynect is an exchange built by Kentuckians, for Kentuckians," she said in a telephone interview. "Kynect was developed with a wide range of stakeholders. Early on we engaged advocates, insurers, agents, health care providers and businesses, and with their input, tailored our exchange to meet their needs."

Banahan's presentation described the federal exchange as generic and inflexible, and Kynect as tailored and flexible. "With a federal exchange, it's a one size fits all approach with no flexibility," she said.

She noted that because of Kynect's autonomy, "We are able to customize for Kentuckians our website and system functionalities, our outreach and education programs, (our) marketing (and our) call-center services.

"As a federal exchange, Kentucky would lose its authority and control to make decisions that impact Kentuckians. . . . Once you lose your authority and control you lose the ability to be informed about what is going on. We would also no longer be unable to intervene or assist individuals and insurers with enrollment problems or issues."

Banahan also noted that funding for kynectors, people who help individuals learn about their health-insurance options, would be reduced by 75 percent if Kentucky moved to the federal exchange. Kynectors held more than 3,000 enrollment, education and outreach events in 2014, she said.

"We don't believe they would provide the statewide services that we have today," Banahan said. With the state based exchange, "We have kynectors in all 120 counties."

Banahan said both agents and insurers are happy with Kynect, and the unique "dashboard" that it offers agents has helped them grow their business by 30 percent -- and the eight insurers that have signed up with Kynect in 2016 have said they probably would not follow Kentucky to the federal exchange. (Corrected Oct. 16, 2015)

Show us the money

Federal money helped start Kynect, but the exchange was set up to be self-sustaining, and is now funded entirely through a 1 percent assessment on insurance policies that the companies pass on to customers. The federal exchange charges a 3.5 percent assessment.

Kynect's budget for the current fiscal year is $26.9 million, according to the presentation.

Banahan said no state has dismantled a "working and successful" exchange, but four failed ones were decommissioned at costs ranging from $5 million to $22 million.

While the total cost of dismantling Kynect is unknown, vendors have projected that it will cost $23 million for IT work alone, Banahan said. "Once we started to decommission Kynect, we believe that cost would be significantly higher."

Alvarado said he was disappointed that Banahan's presentation didn't include information about what it would cost Kentucky annually to participate in the federal exchange, because he had requested that information when he called the meeting.

"For the second time, they could not provide me an answer to that," he said, referring to the Joint Health and Welfare Committee meeting in July, when he said he had pushed Beth Jurek, executive director of the Cabinet for Health and Family Services' budget and policy office, for the same information.

Asked if she had this information, Banahan said, "The governor made an early decision to establish the state exchange; therefore, we did not develop any cost for the federal exchange." She added later, "We never contemplated that we would be part of the federal exchange so we never developed any type of cost, so those numbers aren't available."