States Take Different Paths on ObamaCare Insurance Exchanges

Published May 31, 2016


While a high-profile battle over ObamaCare is being waged in federal courts, skirmishes are currently playing out in a number of states on the question of how to implement this federal legislation, if at all.

One of the most vexing issues facing state legislators and governors remains what to do about the health insurance exchanges mandated under the law. The Patient Protection and Affordable Care Act (PPACA), also known as “ObamaCare,” calls on states to establish a governmental or quasi-governmental entity that will serve as a clearinghouse for the purchasing of health insurance in each state. These exchanges would impose minimum regulations on the insurance being sold and are intended to provide a way for consumers to comparison-shop for insurance policies.

If a state does not set up such an exchange by 2014 under the law, the federal Department of Health and Human Services (HHS) will do so.


Several States Moving Forward

As of late May, at least seven states—Washington, Colorado, Utah, Virginia, Maryland, West Virginia, and California—have made preliminary moves to establish an exchange that abides by the federal law. Massachusetts’s health insurance exchange, the Massachusetts Connector, pre-dates PPACA, as does Utah’s, but neither has been approved by HHS yet.

Although both Republican and Democratic state legislators and governors have announced support for exchange legislation, not all lawmakers have gone along. In Maryland, for instance, a handful of conservative Republicans opposed the exchange legislation.

“In light of recent court decisions, it seems premature and risky to invest considerable funding to set up a system which will, most likely, be ruled unconstitutional,” said Del. Mike McDermott (R-Pocomoke City), explaining his votes against exchange legislation. “Maryland has chosen a government system over a private sector model, and nothing good comes from making government bigger.”


Other States Opposing Implementation

Although the legislation passed in Maryland, policymakers in some other states have proven to be more in tune with McDermott’s misgivings. The governors of Alaska, Louisiana, and Florida have all rejected calls to establish exchanges and refused federal money to plan or begin work on setting them up.

Idaho and Montana lawmakers passed legislation that would have prohibited the creation of a health insurance exchange to comply with PPACA. The governors of both states vetoed these bills, but Gov. Butch Otter of Idaho went on to sign an executive order establishing an almost identical prohibition.

Wayne Hoffman, president of the Idaho Freedom Foundation, a free market think tank, spent significant time educating Idaho legislators about the problems with PPACA. He says Gov. Otter’s executive order, “for the most part, stops the operability of Obamacare in Idaho” but does leave some room to implement a state-based insurance exchange.

“Under Obamacare, a state exchange and a federal exchange is a distinction without a difference,” Hoffman said. “We’ll continue to work with the governor and the legislature to convey our concerns.”


A ‘Lose-Lose Bet’

Lawmakers in other states have not yet rejected exchanges but have also not passed legislation setting them up. Legislation to establish exchanges was introduced in almost every state’s legislature this year, but many of these bills failed or have yet to receive final approval. Some state executive branch officials are moving without legislative sanction to set up exchanges or at least accept planning money for them.

In a 2010 paper, John Graham, director of health care studies at the Pacific Research Institute, urged states to resist setting up these exchanges.

“States establishing Obamacare exchanges are making a one-way, lose-lose bet,” he wrote. “If Obamacare persists, exchanges will become bloated administrative nightmares. If Obamacare is defeated, states will have wasted time and energy that should have been directed towards that effort.”

Graham says the exchanges would be a fiscal burden on states and result in less consumer choice for health insurance.

Some state policymakers accept the arguments being made by Graham and others who counsel state compliance will be a bad deal for state governments and consumers alike. Others maintain exchanges are inevitable or even beneficial, and they are working to ensure their states comply with PPACA’s guidelines.


Take the Slow Path

In light of the pending legal challenges to PPACA, many analysts are urging legislators to go slow. In late May, North Carolina legislators were still debating a bill to create an exchange. But Joseph Coletti, director of health and fiscal policy studies at the John Locke Foundation in North Carolina, says he has been telling his state’s lawmakers that “we don’t need to do a health exchange bill now.”

State legislators considering health exchange legislation have met opposition from Tea Parties and other groups. At the end of Oklahoma’s legislative session, for instance, legislators backed away from plans to establish an exchange. Instead, they set up a committee to study the idea.

Oklahoma House Speaker Kris Steele (R-Shawnee) made the case for caution while defending his decision to study the issue instead of implementing an exchange.

“The scope of this law is vast, so we need to make sure we are prepared to address this law in a conservative way that is best for Oklahoma,” Steele said.


Marc Kilmer ([email protected]) is a senior fellow at the Maryland Public Policy Institute.