The preference reduces the Exchange's administrative costs by $1
million per year, allowing it to maximize its funding for operating a health insurance
marketplace. The Legislature should extend the July 2023 expiration date or make the
preference permanent.
July 2021
Executive Summary
Washington's Health Benefit Exchange is exempt from paying B&O tax on the
state funding it receives
The Legislature established the Washington Health Benefit Exchange (the
Exchange) in 2011. Two years later, the Legislature determined the governing
and funding structure for the Exchange and created this preference. The
Exchange provides a health insurance marketplace for individuals and families
to shop for and purchase health insurance plans.
The preference is scheduled to expire July 1, 2023.
Preference allows the Exchange to maximize its state funding for operating a
health insurance marketplace
The Exchange is structured as a public-private partnership, or quasi-governmental
agency. It is funded through legislative appropriations. Without this preference,
the Exchange would be subject to B&O tax on the funding it receives.
Objective (inferred)
Results
Maximize the funding appropriated by the Legislature to operate the
Exchange.
Met. The preference exempts the Exchange from paying B&O tax on
the state funding it receives. This allows the Exchange to use all of its
appropriated funds to assist Washingtonians in comparing and purchasing health
insurance plans.
Recommendation
Legislative Auditor's Recommendation: Extend the expiration date or make the
preference permanent (structural purpose)
The Legislature should:
Extend the July 2023 expiration date or make the preference permanent. The
preference appears to address a structural tax issue. The Exchange is a
public-private partnership and the state funding it receives would be subject to
B&O tax without this preference.
Add a performance statement that specifies the public policy objective for the
preference.
The Citizen Commission for the Performance Measurement of Tax Preferences should
consider whether the preference is critical to the tax structure. If so, it will be
excluded from future tax preference reviews.
The Washington State Health Benefit Exchange is exempt from
paying B&O tax on the funding it receives
In 2013, the Legislature determined the governing and funding structure for
Washington's Health Benefit Exchange and established this preference.
The preference is scheduled to expire July 1, 2023.
The Exchange was established to provide a health insurance marketplace for
Washingtonians
The federal Affordable Care Act (ACA) created a federal health insurance marketplace
and permitted states and the District of Columbia to establish their own state-based
marketplaces, also known as exchanges. Exchanges are intended to simplify consumers'
experiences in comparing and obtaining health insurance plans that meet federal
standards. They also connect qualifying residents to federal subsidies that lower
their healthcare costs. Exchanges may be accessible through websites, call centers,
and in-person assistance.
The Legislature established Washington's Health Benefit Exchange (the Exchange) in
2011 and determined its governing structure and funding sources in 2013. The Exchange
became fully operational in 2014 as a public-private partnership. It is governed by an
11-member board comprised of a chair and members appointed by each of the legislative
caucuses and the governor. Statute requires that board members have expertise in a
variety of health care areas.
The Exchange is tasked with several roles, including:
Increase access to quality, affordable health care coverage.
Reduce the number of uninsured in Washington.
Increase the availability of health care coverage through the private health
insurance market to qualified persons and small employers.
Provide consumer choice and health insurance portability regardless of
employment.
Empower consumers to compare plans and make informed decisions about health care
coverage.
Funds to operate the Exchange are appropriated
The Exchange pays for its operations through state appropriations from three funding
sources:
Health Benefit Exchange Account: Funded by insurance premium tax receipts
and a monthly assessment paid by insurance companies on health and dental plans sold
through the Exchange.
General Fund-Federal: Federal Medicaid payments for enrollment and
eligibility of Washington Apple Health clients. Apple Health is Washington's version
of Medicaid, the joint state and federal insurance program for low-income
individuals and children or people with disabilities.
General Fund-State: Amounts that may be transferred by the state omnibus
appropriations act under RCW 48.41.090.
Without this preference, the Exchange would be subject to B&O tax on the funding
it receives.
Exhibit 1.1: The Exchange's 2019-2021 biennial funding was appropriated from three
accounts
Fund
FY 2020
FY 2021
Health Benefit Exchange Account
$30,936,000 (50%)
$29,181,000 (49%)
General Fund-Federal
$24,590,000 (40%)
$25,465,000 (42%)
General Fund-State
$6,407,000 (10%)
$5,334,000 (9%)
Total
$61,933,000
$59,980,000
Source: JLARC staff analysis of Health Benefit Exchange biennial funding
detail.
Preliminary Report: Health Benefit Exchange
July 2021
REVIEW Details
2. Preference saves the Exchange 2% of its total funding
The Exchange will save an estimated $2.2 million in the 2021-23
biennium
Preference is achieving its inferred objective to maximize funding for the
Exchange
Based on statements made by the prime sponsor, JLARC staff infer the preference's
public policy objective is to maximize the funding appropriated by the Legislature to
operate the Exchange.
Without the tax preference, Washington's Health Benefit Exchange (the Exchange) would
be subject to business and occupation (B&O) tax on the funding it receives. The
preference reduces the Exchange's costs and enables it to use all of its funding to
cover its operations.
Estimated beneficiary savings: $1 million in fiscal year 2021
JLARC staff estimate the direct beneficiary savings for the Health Benefit Exchange
is $1 million for fiscal year 2021 and $2.2 million for the 2021-23 biennium.
The Exchange is the only beneficiary for this preference. The Department of Revenue's
taxpayer confidentiality policy prohibits disclosing individual account data when
there are fewer than three taxpayers unless the law or the taxpayer specifically
authorizes disclosure. For this review, the Exchange authorized JLARC staff to
calculate and disclose the estimated beneficiary savings from the preference.
The estimated savings are based on legislative appropriations to the Exchange. The
estimates do not include the value of insurance premiums paid by enrollees who
purchase plans through the Exchange.
The tax preference is currently scheduled to expire July 1, 2023.
Exhibit 2.1: The Exchange will save an estimated $2.2 million in the 2021-23
biennium
Fiscal Year
Estimated Amount Subject to Tax
Estimated Tax Savings
2018
$59,043,000
$886,000
2019
$65,069,000
$976,000
2020
$61,933,000
$960,000
2021
$59,980,000
$1,050,000
2022
$61,506,000
$1,076,000
2023
$61,506,000
$1,076,000
2021-23 biennium
$123,012,000
$2,152,000
Note: Effective tax rate changed April 1, 2020, from 1.5% to 1.75%.
Source: JLARC staff analysis of Health Benefit Exchange documentation on
appropriated funding, fiscal years 2018-2021. JLARC staff estimated funding for fiscal
years 2021-23 based on average funding per fiscal year for years 2018- 2021.
Unclear how the Exchange would address its increased costs if the preference were
allowed to expire
JLARC staff estimate that the preference has reduced the Exchange's costs by
approximately 2%, based on appropriations to the Exchange from fiscal years 2018
through 2021.
If the preference were allowed to expire on July 1, 2023, the Exchange indicated that
it would have to determine a next course of action. The Exchange does not believe it
has the statutory authority to charge qualified health plan customers for using its
services and it is prohibited from charging Apple Health (Medicaid) enrollees. Other
options the Exchange, its board, and ultimately the Legislature might consider
include:
Seeking increased appropriation authority from the Legislature to cover the new
cost of the B&O tax.
Reducing expenditures for various Exchange activities.
Seeking additional resources, such as grants or federal funds, to cover estimated
costs of the tax.
Preliminary Report: Health Benefit Exchange
July 2021
Review Details
3. WA residents use the Exchange to find health care plans
Since 2014, Washingtonians have used the Health Benefit Exchange
to find and purchase health insurance
Washington's Health Benefit Exchange (the Exchange) aims to increase access to
affordable health care coverage and reduce the number of uninsured in Washington. Its
online marketplace allows individuals and families to:
Compare and enroll in private qualified health plans.
Enroll in free or low-cost health care through Apple Health. Apple Health is
Washington's version of Medicaid, a joint state and federally funded program for
low-income individuals and children or people with disabilities.
Access federal subsidies that lower customer premiums and cost-sharing.
The Exchange offers tools and resources
The Exchange is responsible for operating WashingtonHealthplanfinder, an online marketplace that offers Washington residents
insurance information, including:
Side-by-side comparisons of qualified health and dental plans.
Details on tax credits or financial help to pay for co-pays and premiums.
Customer support online, by phone, or in-person through local organizations or
insurance brokers.
Exhibit 3.1: Since 2015, 1.6 million or more WA residents have enrolled annually
through the Exchange for qualified private health plans or for Apple Health
(Medicaid)
Source: JLARC staff analysis of 2014-2019 Health Benefit Exchange enrollment data.
Washington's uninsured rate has been consistently lower than the national uninsured
rate. Since 2014, when the Exchange began offering its online marketplace,
Washington's uninsured rate has been at least three percentage points lower than the
national rate.
Exhibit 3.2: Washington's uninsured rate reached a low in 2016 and has been
consistently lower than the national average
Source: JLARC staff analysis of Office of Financial Management Research Brief 98,
December 22, 2020.
Preliminary Report: Health Benefit Exchange
July 2021
Review Details
4. Fourteen states and DC offer state-based exchanges
States provide online health insurance marketplaces in several
ways
Residents of every state and the District of Columbia can shop for, compare, and
purchase health care plans from an online marketplace, also known as an exchange.
There are three main types of marketplaces offered throughout the country.
Exhibit 4.1: Washington is one of 14 states and DC that provide a state-based
exchange
State-based
State-based, using federal platform
Federally facilitated
A state-specific organization performs all marketplace functions for the individual market.
Consumers apply for and enroll in coverage through websites established and
maintained by the state. In WA, this is the Health Benefit Exchange.
A state-based marketplace performs all functions for the individual market,
except the state relies on the federal Healthcare.gov website for eligibility
and enrollment. Consumers in these states apply for and enroll in coverage
through the federal website.
The federal Department of Health and Human
Services performs all marketplace functions. Consumers in these states apply for
and enroll in coverage through Healthcare.gov.
Source: JLARC staff analysis of Kaiser Family Foundation web site, viewed January
24, 2021, and Congressional Research Service publication, Blueprint for Approval of
State-based Health Insurance Exchanges.
State-based exchanges are managed by government, nonprofit, and quasi-governmental
entities
Some state-based exchanges are part of state government and others, like
Washington's, are run by a quasi-governmental entity with varying levels of state
input and oversight.
"Quasi-governmental" is not specifically defined. A Congressional Research Service
report defined it as a hybrid organization that has been assigned by law, or by
general practice, some of the legal characteristics of both the government and private
sector. These are also known as public-private partnerships.
Exhibit 4.2: Several types of entities manage state-based exchanges
Organization Type
States
1. State government agency or department:
The state establishes the exchange within an existing or new state government
agency.
CA, MN, NJ, NV, NY, RI, VT
2. Public nonprofit organization:
The state establishes a nonprofit
entity to house the health insurance marketplace. The organization is
governed by a board of directors with input or oversight from the governor,
legislative branch, or certain state government agencies.
CO
3. Quasi-governmental agency:
The state houses the marketplace
outside of state government within an independent agency. The
quasi-governmental agency is typically governed by a board of directors with
input or oversight from the governor, legislative branch, or certain state
government agencies. These are also known as public-private partnerships.
CT, DC, ID, MD, MA, PA, WA
Source: JLARC staff analysis of National Academy for State Health Policy data as of
January 2021.
At least three other states with health exchanges similar to Washington's are tax
exempt
Like Washington, JLARC staff confirmed that at least three of the six other states
using a quasi-governmental or public-private partnership structure have explicitly
exempted their health insurance exchanges from state and local taxes. They are:
Connecticut
Idaho
Maryland
Preliminary Report: Health Benefit Exchange
July 2021
Review Details
5. Applicable statutes
RCW 82.04.323, Chapter 43.71 RCW
Exemption - Washington health benefit exchange. (Expires July 1, 2023.)
RCW 82.04.323
(1) The taxes imposed by this chapter do not apply to amounts
received by the Washington health benefit exchange established under chapter 43.71
RCW.
(2) This section expires July 1, 2023.
[ 2013 2nd sp.s. c 6 § 8.]
Chapter 43.71 RCW - Health Benefit Exchange
Finding – Intent.
RCW 43.71.005
(1) The legislature finds that the affordable care act requires
the establishment of health benefit exchanges. The legislature intends to establish an
exchange, including a governance structure. There are many policy decisions associated
with establishing an exchange that need to be made that will take a great deal of
effort and expertise. It is therefore the intent of the legislature to establish a
process through which these policy decisions can be made by the legislature and the
governor by the deadline established in the affordable care act.
(2) The exchange is intended to:
(a) Increase access to quality affordable health care coverage,
reduce the number of uninsured persons in Washington state, and increase the
availability of health care coverage through the private health insurance market to
qualified individuals and small employers;
(b) Provide consumer choice and portability of health insurance,
regardless of employment status;
(c) Create an organized, transparent, and accountable health
insurance marketplace for Washingtonians to purchase affordable, quality health care
coverage, to claim available federal refundable premium tax credits and cost-sharing
subsidies, and to meet the personal responsibility requirements for minimum essential
coverage as provided under the federal affordable care act;
(d) Promote consumer literacy and empower consumers to compare
plans and make informed decisions about their health care and coverage;
(e) Effectively and efficiently administer health care subsidies
and determination of eligibility for participation in publicly subsidized health care
programs, including the exchange;
(f) Create a health insurance market that competes on the basis
of price, quality, service, and other innovative efforts;
(g) Operate in a manner compatible with efforts to improve
quality, contain costs, and promote innovation;
(h) Recognize the need for a private health insurance market to
exist outside of the exchange; and
(i) Recognize that the regulation of the health insurance market,
both inside and outside the exchange, should continue to be performed by the insurance
commissioner.
Definitions.
RCW 43.71.010
The definitions in this section apply throughout this chapter
unless the context clearly requires otherwise. Terms and phrases used in this chapter
that are not defined in this section must be defined as consistent with implementation
of a state health benefit exchange pursuant to applicable federal law.
(1) "Authority" means the Washington state health care authority,
established under chapter 41.05 RCW.
(2) "Board" means the governing board established in RCW
43.71.020.
(3) "Commissioner" means the insurance commissioner, established
in Title 48 RCW.
(4) "Exchange" means the Washington health benefit exchange
established in RCW 43.71.020.
(5) "Self-sustaining" means capable of operating with revenue
attributable to the operations of the exchange. Self-sustaining sources include, but
are not limited to, federal grants, federal premium tax subsidies and credits, charges
to health carriers, premiums paid by enrollees, and premium taxes under RCW
48.14.0201(5)(b) and 48.14.020(2).
Washington health benefit exchange.
RCW 43.71.020
(1) The Washington health benefit exchange is established and
constitutes a self-sustaining public-private partnership separate and distinct from
the state, exercising functions delineated in chapter 317, Laws of 2011. By January 1,
2014, the exchange shall operate consistent with applicable federal law subject to
statutory authorization. The exchange shall have a governing board consisting of
persons with expertise in the Washington health care system and private and public
health care coverage. The membership of the board shall be appointed as follows:
(a) Each of the two largest caucuses in both the house of
representatives and the senate shall submit to the governor a list of five nominees
who are not legislators or employees of the state or its political subdivisions, with
no caucus submitting the same nominee.
(i) The nominations from the largest caucus in the house of
representatives must include at least one employee benefit specialist;
(ii) The nominations from the second largest caucus in the house
of representatives must include at least one health economist or actuary;
(iii) The nominations from the largest caucus in the senate must
include at least one representative of health consumer advocates;
(iv) The nominations from the second largest caucus in the senate
must include at least one representative of small business;
(v) The remaining nominees must have demonstrated and
acknowledged expertise in at least one of the following areas: Individual health care
coverage, small employer health care coverage, health benefit plan administration,
health care finance and economics, actuarial science, or administering a public or
private health care delivery system.
(b) The governor shall appoint two members from each list
submitted by the caucuses under (a) of this subsection. The appointments made under
this subsection (1)(b) must include at least one employee benefits specialist, one
health economist or actuary, one representative of small business, and one
representative of health consumer advocates. The remaining four members must have a
demonstrated and acknowledged expertise in at least one of the following areas:
Individual health care coverage, small employer health care coverage, health benefit
plan administration, health care finance and economics, actuarial science, or
administering a public or private health care delivery system.
(c) The governor shall appoint a ninth member to serve as chair.
The chair may not be an employee of the state or its political subdivisions. The chair
shall serve as a nonvoting member except in the case of a tie.
(d) The following members shall serve as nonvoting, ex officio
members of the board:
(i) The insurance commissioner or his or her designee; and
(ii) The administrator of the health care authority, or his or
her designee.
(2) Initial members of the board shall serve staggered terms not
to exceed four years. Members appointed thereafter shall serve two-year terms.
(3) A member of the board whose term has expired or who otherwise
leaves the board shall be replaced by gubernatorial appointment. Upon the expiration
of a member's term, the member shall continue to serve until a successor has been
appointed and has assumed office. When the person leaving was nominated by one of the
caucuses of the house of representatives or the senate, his or her replacement shall
be appointed from a list of five nominees submitted by that caucus within thirty days
after the person leaves. If the member to be replaced is the chair, the governor shall
appoint a new chair within thirty days after the vacancy occurs. A person appointed to
replace a member who leaves the board prior to the expiration of his or her term shall
serve only the duration of the unexpired term. Members of the board may be reappointed
to multiple terms.
(4) No board member may be appointed if his or her participation
in the decisions of the board could benefit his or her own financial interests or the
financial interests of an entity he or she represents. A board member who develops
such a conflict of interest shall resign or be removed from the board.
(5) Members of the board must be reimbursed for their travel
expenses while on official business in accordance with RCW 43.03.050 and 43.03.060.
The board shall prescribe rules for the conduct of its business. Meetings of the board
are at the call of the chair.
(6) The exchange and the board are subject only to the provisions
of chapter 42.30 RCW, the open public meetings act, and chapter 42.56 RCW, the public
records act, and not to any other law or regulation generally applicable to state
agencies. Consistent with the open public meetings act, the board may hold executive
sessions to consider proprietary or confidential nonpublished information.
(7)(a) The board shall establish an advisory committee to allow
for the views of the health care industry and other stakeholders to be heard in the
operation of the health benefit exchange.
(b) The board may establish technical advisory committees or seek
the advice of technical experts when necessary to execute the powers and duties
included in chapter 317, Laws of 2011.
(8) Members of the board are not civilly or criminally liable and
may not have any penalty or cause of action of any nature arise against them for any
action taken or not taken, including any discretionary decision or failure to make a
discretionary decision, when the action or inaction is done in good faith and in the
performance of the powers and duties under chapter 317, Laws of 2011. Nothing in this
section prohibits legal actions against the board to enforce the board's statutory or
contractual duties or obligations.
(9) In recognition of the government-to-government relationship
between the state of Washington and the federally recognized tribes in the state of
Washington, the board shall consult with the American Indian health commission.
Health benefit exchange account.
RCW 43.71.060
(1) The health benefit exchange account is created in the state
treasury. Moneys in the account may be spent only after appropriation. Expenditures
from the account may only be used to fund the operation of the exchange and
identification, collection, and distribution of premium taxes collected under RCW
48.14.0201(5)(b) and 48.14.020(2).
(2) The following funds must be deposited in the account:
(a) Premium taxes collected under RCW 48.14.0201(5)(b) and
48.14.020(2).
(b) Assessments authorized under RCW 43.71.080; and
(c) Amounts transferred by the pool administrator as specified in
the state omnibus appropriations act pursuant to RCW 48.41.090.
(3) All receipts from federal grants received may be deposited
into the account. Expenditures from the account may be used only for purposes
consistent with the grants.
Preliminary Report: Health Benefit Exchange
July 2021
Recommendations & Responses
Legislative Auditor's Recommendation
Legislative Auditor recommends extending the expiration date or
making the preference permanent (structural purpose)
The Legislature should:
Extend the July 2023 expiration date or make the preference permanent. The
preference appears to address a structural tax issue. The Exchange is a
public-private partnership and the state funding it receives would be subject to
B&O tax without this preference.
Add a performance statement that specifies the public policy objective for the
preference.
The Citizen Commission for the Performance Measurement of Tax Preferences should
consider whether the preference is critical to the tax structure. If so, it will be
excluded from future tax preference reviews.
