Research & Commentary: Health Insurance Exchanges in Small States

Published June 18, 2012

Several states have halted the creation of health insurance exchanges, awaiting a decision from the U.S. Supreme Court on the federal health care law. Meanwhile, others are finding they are too small to run an exchange successfully, regardless of the Court’s ruling. States with smaller populations can expect fewer individuals enrolling in an exchange. Without adequate enrollment, administrative costs and premiums rise, placing a bigger burden upon the state and consumers.

The Obama administration claims a solution to this problem is the federal-state partnership model, under which states could be in charge of enrollment and beneficiary management while the federal government took responsibility for the technology and overall structure, according to the U.S. Department of Health and Human Services.

However, in all of its established rules to date, HHS has not clearly defined the federal-state partnership, though it has made it clear states won’t really be in charge. A letter to HHS by Illinois Gov. Pat Quinn and Iowa Gov. Terry Branstad for the National Governors Association stated, “Under the proposed partnership models, states would be required to cede many operations that have been traditionally handled at the state level, such as Medicaid eligibility, regardless of whether they implement a state-based exchange, implement a state-federal partnership model or turn over responsibility for the exchange entirely to the federal government.”

The final HHS health insurance exchange rules confirm this, stating, “The Affordable Care Act does not contemplate divided authority over an Exchange. In all organizations of a federally-facilitated exchange, the Secretary will retain ultimate responsibility and authority over operations and all inherently governmental functions. A State wishing to enter into a Partnership must agree to perform the function(s) within certain parameters, as agreed upon by the State and HHS.”

A state of any size that wants to lower costs while maintaining authority over its health care system thus would be wise to refrain altogether from implementing an exchange.

The following documents offer additional information on federal-state partnerships and health insurance exchanges.


HHS Proposes a “Second Chance” for State Exchanges

Kendall Antekeier of The Heartland Institute discusses the federal-state partnership model as first proposed to Montana legislators. Montana state Rep. Tom Berry notes, “We were all kind of mystified because we never heard of a partnership with the federal government before. When we asked, ‘What is it?’ they couldn’t answer.”

HHS Pushes Federal-State Partnerships for Insurance Exchanges

Kaiser Health News describes the arguments for and against state involvement in federal-state health insurance exchange partnerships. “Exchange legislation efforts have failed in 16 states—a demonstration of the widespread opposition to the law,” the article notes.

Policy Tip Sheet—State Health Insurance Exchanges

Kendall Antekeier of The Heartland Institute outlines policy issues and facts about state health insurance exchanges in this one-page policy tip sheet. “Some states already have experimented with health insurance exchanges, and their experience shows exchanges rarely succeed in providing consumer-centered, cost-efficient health care,” Antekeier writes.

State Insurance Exchanges: The Case Against Implementation

Heartland Institute Research Fellow Benjamin Domenech, managing editor of Health Care News, explains the dangers for states that implement health insurance exchanges: “Some state policymakers … have attempted to find a middle path between compliance and resistance. … The middle path is treacherous: It offers no protection against future decisions by the federal bureaucracy, collaborates with an unconstitutional framework, and risks undercutting court cases across the country.”

National Governors Association Letter—Health Exchange Partnership Models–human-services-committee/col2-content/main-content-list/november-2-2011-letter—health.html

In a letter to the Department of Health and Human Services, the National Governors Association submits comments on the health insurance exchange partnership models. The letter notes, “The decision to implement health insurance exchanges requires a number of complex policy decisions amid aggressive timelines. States can only make suitable decisions if provided with complete and timely information.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at


If you have any questions about this issue or the Heartland Web site, contact Heartland Institute Manager of External Relations Kendall Antekeier at [email protected] or 312/377-4000.