Many States Resist Lead Role Running Insurance Markets

Investor's Business Daily

ObamaCare's subsidized insurance exchanges are supposed to be up and running in little more than a year, putting a key piece of the federal health care law into action.

But it's unclear that will happen, especially with a growing number of states saying they don't want the cost and regulatory headaches.

The exchanges are where consumers without employer-based coverage will shop for insurance under ObamaCare and receive a tax credit toward its purchase if they are eligible. But 21 states have expressly declined to set up their own exchanges, with nine others still undecided ahead of the Dec. 14 deadline.

We Won't Build That

The more states that decline to set up a state-run exchange, the bigger the task that will fall to the federal government, which must set up and run insurance marketplaces in their place under ObamaCare. That could prove a difficult mandate given that all exchanges are supposed to be operational by Jan. 1, 2014.

State-run exchanges — within still-unclear federal mandates — could determine plan benefits, determine eligibility and handle enrollment. But many states — mostly with Republican governors — say creating and running their own exchanges offers heavy costs and responsibilities but little autonomy or clarity.

Setting up exchanges means states co-own ObamaCare, for good or ill. When problems develop, state officials will take some of the heat. But Washington will be fully responsible for federal exchanges.

The latest to decline are Arizona and Michigan.

Arizona will join 17 other states that have declined and will likely leave it to the federal government to create and run their exchanges. They still have until Feb. 15, 2013, to decide between a federal exchange or doing a "state-federal partnership" exchange.

Michigan joins Ohio and Arkansas in declining a state-based exchange but choosing the partnership route. Under this type of exchange, states can oversee insurance plans and assist consumers, but the federal government will handle duties such as enrollment and determining eligibility. States will also have the option to eventually transition to a state exchange.

Delaware, Illinois and North Carolina also have opted for partnerships but did not expressly decline establishing state exchanges.

Seventeen states have declared their intent to establish a state exchange, though at least one — Iowa — may back out.

Costs, control and regulatory uncertainty are the common concerns among states that have declined to set up a state exchange.

Cost was mentioned in the letters or press statements of 14 governors and was the reason the GOP-controlled legislatures of Arkansas and Michigan opposed a state exchange.

State exchanges have to be self-sustaining by 2015. Many governors worried that would mean new taxes on their residents.

'Too Expensive'

Nebraska did the most thorough analysis, finding that running an exchange would cost the state about $646 million in fiscal 2013-20. "It is simply too expensive to do a state insurance exchange," Nebraska Gov. Dave Heineman said.

The U.S. Department of Health and Human Services said last week it will impose a 3.5% fee on insurance plans sold via federally run exchanges. This lets HHS sidestep ObamaCare's lack of any funding for federal exchanges. Those costs presumably will be passed on to consumers.

Supporters of state exchanges say they'll allow state leaders to tailor plan benefits and other key provisions to best serve their residents. But governors of the opt-out states say that in reality, the federal government has left states little power to do that.

"The federal government would maintain oversight and control over virtually every aspect of our exchange, limiting our ability to meet the unique needs of Arizonans and the Arizona insurance market," said Gov. Jan Brewer in a letter to Health and Human Services Secretary Kathleen Sebelius.

Texas Gov. Rick Perry was more blunt: "It is clear there is no such thing as a state exchange. Instead, this is a federally mandated exchange with rules dictated by Washington.

Several governors expressed concern about the lack of clear regulations from the HHS.

Wyoming Gov. Matt Mead sent three letters asking for more clarity from HHS. In the third, he expressed "frustration with the lack of cooperation and information needed for Wyoming to make critical decisions.

HHS has released two regulations that apply to state exchanges, one in July and the other only in November.

Quality-reporting requirements for insurance plans participating in the exchanges will likely not be ready by 2014. HHS has proposed that they not take effect until 2016.

Some officially undecided states have expressed serious concerns much like the states that have opted out. Spokesmen for Govs. Bob McDonnell of Virginia and Bill Haslam of Tennessee cited regulatory uncertainty. In a letter to Sebelius, Florida Gov. Rick Scott expressed concerns about regulation and doubts that an exchange would reduce the cost of health care.

The other six undecideds — Idaho, Montana, New Jersey, Pennsylvania, Utah and West Virginia — did not respond to IBD's request for comment.

Iowa GOP Gov. Terry Branstad wrote to Sebelius that he planned to continue with plans for a state exchange. But he said HHS regulatory uncertainty could change his mind. "If forced to make a decision with incomplete information," he said, "then I have no choice but to default on some level to a federal exchange.

One snag is that the ObamaCare legislation appears to only grant taxpayer subsidies to state-run exchanges. Further, without exchange subsidies, businesses in those states would not face the employer mandate to provide coverage or pay a fine.

Obama's Internal Revenue Service has ruled that federal exchanges would still get subsidies, despite the law's wording. But the ruling could be vulnerable to court challenges.

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