Health & Human Services

Legislatures Losing Time to Create State Health Exchanges

Even though many expected most states to choose to create their own insurance marketplaces and the deadline to secure federal funding to do so nears, most states are passing over the issue in legislative sessions.
by | April 1, 2014
Virginia Gov. Terry McAuliffe called a special session after legislators failed to pass a budget because of an impasse over whether or not to expand Medicaid.
Virginia Gov. Terry McAuliffe called a special session after legislators failed to pass a budget because of an impasse over Medicaid expansion, which has overshadowed a bill to create a state exchange. AP/Steve Helber

As state legislative sessions end for the year, so does the possibility that more states will establish their own health insurance exchanges because the deadline to apply for federal grants to help create them expires at the end of the year.

The federal government never expected to host 36 online marketplaces when the Affordable Care Act (ACA) was designed, especially considering insurance regulation has long been a state prerogative. Some 30 of those states are either completely or partially controlled by Republicans, who many health-care consultants and analysts think will warm to the idea of seeking greater control over their own markets.

“It’s historically been a state responsibility,” said Patricia Boozang, managing director of Manatt Health Solutions, a consulting firm that advises states on ACA implementation.  “I think that’s still a big driver, really wanting to have that level of state control, both in terms of regulation and the consumer piece of this.”

But election-year politics and the technical challenges of the federal and several state-based marketplaces have pushed the issue to the periphery. Most states' legislative sessions end in the spring or early summer, and only a handful have bills circulating that would authorize a state exchange.

Among those states, only Illinois lawmakers are optimistic that a bill will survive both chambers. That’s in large part because Democrats control both the Senate, where a bill already passed, and the House, where some members have been reluctant not for political reasons but practical ones, according to Sen. David Koehler, the sponsor of the Senate bill.

“It’s not a political thing at all,” Koehler said. “It’s more of a, ‘Do we need it and what does it mean for us?’ We’re not afraid to say Obama in this state.”

But in Indiana, a solidly conservative state, a health exchange bill from a Democrat went nowhere before the state adjourned its legislative session.

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States that host their own exchanges decide which insurers participate and whether to require additional quality or pricing guidelines, form marketing and outreach strategies, and exercise greater authority over specific benefits in plans. States that host their own exchanges are also able to integrate services such as Medicaid and other social programs.

Some states that are also expanding Medicaid are currently running partnership exchanges, which retain more control over plan management and other tasks while leaving the actual website operations and other functions to the federal government. Among those, Iowa, Arkansas and Michigan have stated their intentions to transition to a state-based exchange but have not taken up legislation.

Laying out a blueprint through legislation is an essential step to secure Level Two Establishment Grants, which help states pay for the creation of an online exchange as well as call centers, marketing and other consumer services. Those grants are far larger than Level One, which are mostly for exploring options, studying technical requirements and implementing market reforms. For example, Connecticut's Level One grant was about $31 million while its Level Two grant was about $132 million, according to the Kaiser Family Foundation.

Most states, even those under uniform Republican control, took Level One grants, but only 14 have Level Two Grants. Both types of grants can be used over a period of five years. The Centers for Medicare & Medicaid Services, which runs all exchange operations, determines grant size by the scope of the plans that states present, the size of the state and the level of state-level revenue committed to the project. The cost of establishing a state-based exchange has ranged from about $80 million in Rhode Island to more than $900 million in California.

With the election of a Democratic governor and the state’s political dynamics, Virginia has been considered a possible addition to the list of places transitioning to its own health exchange. But the ongoing impasse between Gov. Terry McAuliffe and the legislature over Medicaid expansion has overshadowed a bill from a Republican lawmaker who wants the state to gradually create its own exchange.

“I think [a state-based exchange] puts us in a position where we have a little more control of our own destiny,” said Sen. John Watkins.

But he says getting any consideration for his bill is unlikely, given the battle over the budget and Medicaid expansion. And without the possibility of significant federal funding, the prospects of creating an exchange down the road are faint. “I’m usually very much of an optimist, but I’m not that much of one right now."

Arizona state Rep. Eric Meyer, a Democrat, is running into similar problems passing his bill to transition to a state-based exchange even though his GOP-controlled state already decided to expand Medicaid. Like Virginia, Arizona is now consumed by budget talks. Meyer has no Republican co-sponsors and admits there’s no chance his bill is going anywhere.

“The reality here is that if you endorse the state exchange, you’d be endorsing Obamacare and you’d be [considered among conservatives] a traitor to our country,” he said.

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