Implementation of State Exchanges Loaded with Uncertainty

Published May 20, 2011

Under the Patient Protection and Affordable Care Act, states are required to create a health insurance exchange. While these exchanges must be submitted for approval from the U.S. Department of Health and Human Services, the agency has not yet promulgated rules for the exchanges or made clear what specific types of exchanges will be approved.

Given the uncertainty of the legal future for Obama’s law, some activists and policy analysts say it makes the most sense for states to wait before moving forward with their exchanges, particularly if they are one of the 29 states currently participating in federal lawsuits against the law. But some say exchanges should be set up regardless of any future court decisions.

Exchanges will administer the purchase and transfer of health insurance, ostensibly providing a government-managed marketplace. According to PPACA, states must “demonstrate progress toward implementing an Exchange” by January 1, 2013, or the federal government will take over the process.


For Bureaucrats, Not People

According to Ed Haislmaier, a senior research fellow in health policy studies at the Heritage Foundation, health insurance exchanges provide a benefit in helping consumers and insurers find each other.

“We don’t have a free market for health insurance,” Haislmaier said. “That’s the problem. We have a market in which there is a huge tax break, which everybody wants, but only if your employer provides your insurance. So then you wind up with somebody else making these decisions.

“If you were to give everyone a tax break regardless of where they bought it,” consumers could simply buy in the open market, Haislmaier added. “Until we get there, this is trying to create a consumer-choice market in an employer setting.”

However, Haislmaier says Congress and the White House seized on the exchange structure not as a marketplace but as a way to centralize power.

“Instead of becoming just a market clearinghouse, with no regulatory power,” he said, “it becomes a way for the federal government to do things it has never done before, which is to regulate insurance at the state level and administer a brand new subsidy system.”


Disagreement About Exchanges

Haislmaier believes states should set up exchanges whether the PPACA is upheld or not. But Devon Herrick, a senior fellow with the National Center for Policy Analysis, notes the exchanges under the PPACA must restrict both insurers and consumers in a variety of ways, including the types of plans that can be offered and tight controls on insurance company profit and expenses.

“If the policies in the exchange are unpopular, there is no exchange that is good enough to get people to buy them,” Herrick said. “If the policies are ones consumers want to buy, the only exchange you would need is ‘’ or a similar portal.”

Joseph Coletti of the John Locke Foundation sums up the argument for doing nothing.

“It looks like the rules that are coming down are that states can only make their exchange more regulated and less market-friendly than a federal exchange would be,” Coletti said. “It’s a one-sided bet. And with that framework, there is less argument that the states need to run an exchange. If the only option that you have is to make things harder for consumers and insurance companies to find a competitive marketplace, then don’t.”

Coletti argues that states should let the federal government run the exchanges.

“It’s expensive and unnecessary. North Carolina is talking about $22 million in administrative costs alone.” said Coletti. “Why increase the burden on your people? If you’re going to have a tax increase, let the people who are responsible for the tax increase, the federal government, impose that tax increase.”


‘A Headache for Consumers’

Amanda Griffin-Johnson of the Illinois Policy Institute says the exchanges will not be as simple as, for instance, booking travel online.

“It is not going to be just your name, and where you live. It is going to require income levels, and details consumers may not even know. They’ll have to bring out tax returns and other documents, and get professional advice on how to fill out the forms,” Griffin-Johnson said.

“The rules aren’t yet all there from HHS, and judging from similar processes for Medicare and Medicaid, exchanges will demand a lot of information, personal details. It is likely to be a lot more of a headache for consumers than they realize,” she added.


‘Have Patience’

Griffin-Johnson advises legislators not to move too quickly to thrust this complicated process on consumers.

“My main advice for legislators right now would be to have patience, and to take a critical eye to this issue. I know they feel a lot of pressure to get it done quickly,” continued Griffin-Johnson. “But it makes more sense to wait until HHS publishes more guidance for what the exchanges are supposed to look like before voting to set them up.”

“When you’re taking federal money, in the end the federal government will say what they are going to look like. It’s a dangerous slope to tread,” said Griffin-Johnson. “There is a lot of downside to opening an exchange, and not that much upside.”

Griffin-Johnson says states will be better off “letting the federal government deal with this mess.” Coletti agrees.

“Don’t do anything this year,” he says.


Loren Heal ([email protected]) writes from Neoga, Illinois.