Why States Using the Federal Exchange Are Unlikely To Run Their Own

States relying on HealthCare.gov need a backup plan if they want to help their residents keep subsidized health insurance. The Supreme Court this summer could rule that subsidies are illegal outside of state-based exchanges.

What might that plan look like? Two primary options are on the table:

  1. A proposed GOP plan that would allow affected individuals to continue receiving support in the form of tax credits; or
  2. States set up and run their own exchanges, which would guarantee the protection of their residents’ subsidies.

Thirty-seven states are relying on the federal government to administer an insurance exchange for their residents. More than 9.3 million residents of those states stand to lose more than $28.8 billion in subsidies, depending on the outcome of King v. Burwell, according to estimates from the Urban Institute.

“I think you can pretty safely say that if the subsidies are gone, quite a large percentage of people really could not afford their coverage and will have to drop it,” said Ani Turner, deputy director of the Altarum Institute’s Center for Sustainable Health Spending.

The effects would be far reaching.

“It would have an adverse effect on the people who lose coverage, on the insured people who are left with higher costs, insurers’ bottoms lines would then be uncertain, and of course [on] providers who have been benefiting from more paying customers,” Turner added.

Late last year, California Healthline looked into what those states using HealthCare.gov were planning to do, and at the time, not many had moved forward on a contingency plan. And now, just several weeks out from the Supreme Court issuing its decision, we’re still at status quo.

Why Aren’t More States Making Moves To Set Up Their Own Exchanges?

According to Tim Jost, a Washington and Lee University law professor, the reasons for states’ lack of action are “overwhelmingly political.” Jost said that “Republican governors and legislators don’t want to appear to be cooperating with Obamacare.”

Few governors so far — not even those in Florida or Texas, whose residents would be most affected — have signaled their intention to step in should SCOTUS rule against their premium assistance. And others — like Gov. Bobby Jindal (R) in Louisiana, where about $85 million in subsidies is on the line — have outright rejected the idea.

Some Republican governors have signaled an openness to creating their own exchanges.

For example, Michigan Gov. Rick Snyder (R) previously supported creating a state-run exchange. In March, he said that if the subsidies are ruled illegal, “that raises the question, ‘Should we be looking at a state exchange again?'”

The effects of the court’s decision would not go unnoticed in Michigan, where about 277,000 residents could become uninsured if the projected 321,000 people receiving more than $90 million in subsidies were to lose them.

Meanwhile, Ohio Gov. John Kasich (R) has not ruled out creating a state-run exchange and has said that “[i]f the court makes a decision that these exchanges get shut down, then we’re going to have to figure something out in Ohio.”

Ohio stands to lose the most out of all the non-Southern states using the federal exchange. About 497,000 residents receive more than $1.5 billion in subsidies. If they were to lose them, the number of uninsured in the state would increase by about 459,000, according to the Urban Institute.

Despite the talk, no meaningful steps have been taken.

In Fact, Some States Are Abandoning Their Exchanges

In recent months, some states that were in the process of developing their own exchanges or already operating them have scrapped those plans or signaled their intention to switch to the federal exchange.

For example, New Mexico, which has used the federal exchange during the first two enrollment periods, dropped its plan to develop a state-based exchange.

New Mexico Health Insurance Exchange CEO Amy Dowd attributed the decision to costs and concerns about not being able to provide a high level of customer support. State Insurance Superintendent John Franchini pegged annual costs for a state-based exchange about $3 million to $5 million.

“I feel that renting the software and the program (from the federal government) is much more efficient and prudent for us,” he told the Albuquerque Journal.

Meanwhile, a Minnesota House committee in March approved a measure to end the state’s exchange, MNsure, and begin using the federal exchange by 2017. Gov. Mark Dayton (D) proposed creating a task force to investigate the future of health care in Minnesota consider whether the state should abandon the exchange.

Moreover, Arizona Gov. Doug Ducey (R) this month signed a bill (HB 2643) into law that effectively kills the state’s chances of creating a state-based exchange. The new law explicitly prohibits the state from ever creating its own exchange — unless it were eventually repealed.

Writing at Vox, Sarah Kliff notes that “the message here is clear: Arizona’s elected officials want to make it as hard as possible for the state to ever do anything to cooperate with Obamacare.”

Why Are States Sticking With The Federal Exchange?

Recent data from Avalere Health might shed some light on why states seem content with the federal marketplace.

After its rocky start a couple years ago, HealthCare.gov now appears to be outperforming its state-run counterparts: New enrollment in federally run exchanges increased by 61% between 2014 and 2015, while state exchange enrollment increased by 12%.

Further, the federally run exchanges re-enrolled a higher percentage of 2014 customers and added new customers at a higher rate in 2015 than state-run exchanges.

The study, which examined 34 states in the federal exchange and 11 of those using their own, found an average re-enrollment rate of 78% among the federally run exchanges, compared with 69% among the state-run exchanges.

Two of the largest state exchanges — California and New York — saw enrollment increase by 1% and 10%, respectively. In contrast Florida and Texas in the federal exchange saw enrollment increase by 62% and 64%, respectively.

Despite their guarantee of subsidies, it looks like state-based exchanges are becoming a risker bet as their enrollment slows.

“There are political concerns, the expense is also an issue, and then there’s just the difficulty of maintaining it,” Jost said of state exchanges. But “the most basic requirement is that a state actually has to express its desire to establish an exchange, and not many states are in a position to do so.”                                                           

Around the nation

Here’s a look at other stories making news on the road to reform.

No. 30. Montana is poised to become the 30th state to expand Medicaid under the Affordable Care Act after an expansion bill this week was sent to Gov. Steve Bullock (D), who is likely to sign the measure, Kristen Inbody reports for the Great Falls Tribune.

All those in favor … . The Kaiser Family Foundation’s latest tracking poll finds that more U.S. residents support the ACA than oppose it for the first time since 2012, Sarah Ferris writes for The Hill.

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