Research & Commentary: The Cost of Failed Health Insurance Exchanges

Published June 17, 2014

Under the Affordable Care Act (ACA) states were allowed to choose between creating their own health insurance exchanges and joining a federal exchange. Many of the marketplaces in these exchanges have not performed well because they have failed to draw enough providers to create real competition, have been riddled by technical issues, and have resulted in increased health care costs. Consequently, many states that established their own exchanges are now beginning efforts to rebuild their systems or have decided to drop their exchanges altogether and opt for the federal exchange. 

According to The Federalist, since 2011 37 states plus the District of Columbia received more than $4.9 billion in grants to operate health insurance marketplaces (as of January 2014). Four states in particular are facing severe difficulties, despite having spent almost half-a-billion taxpayer dollars on their creation and implementation. According to Politico, Massachusetts, Maryland, Nevada, and Oregon already have shut down their exchanges. According to Kaiser, Massachusetts has spent $57 million and is asking for $121 million more, Maryland spent $118 million, Nevada has spent $51 million of its $90 million in grants, and Oregon spent $248 million on exchanges that have failed. 

Adding Minnesota and Hawaii, two states facing similar problems with their exchanges, brings the total cost to $834 million. With a collective enrollment of 270,000 in those six states, taxpayers have paid more than $3,000 per enrollee. Writing at The Federalist, Phil Kerpen reports a seventh state can be added to the list of failing exchanges: Vermont. Kerpen notes six of the seven states are controlled by Democrats who fully supported Obamacare, hence their failures cannot be attributed to any partisan lack of motivation to make the programs work. 

In a Forbes article, Christopher Conover, Yevgeniy Feyman, and Katherine Restrepo note federal taxpayers have spent “$4,633 per enrollee for each of the more than 8+ million who have signed up for Exchange coverage through April 19.” The average spending differs from state to state, ranging from a “low of $3,038 in Tennessee to a high of $24,947 in Hawaii.” In addition, the spending that has been revealed so far represents only the costs officials have publicly detailed to date; the real costs may be even higher. 

The federal government has spent millions of dollars on state-based exchanges that give the federal government considerable control over health care policies, what they cover, and how much they cost. Instead of wasting millions of dollars propping up exchanges that do not work, legislators should focus on creating health care policies that lower costs and empower individuals to control their own health care. 

The following articles examine the state Obamacare exchanges, the costs of implementation, and the costs of exchange failures.

Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems. 

$474M for 4 Failed Obamacare Exchanges
Jennifer Haberkorn and Kyle Cheney of Politico discuss the costly failure of several state Obamacare health insurance exchanges: “Nearly half a billion dollars in federal money has been spent developing four state Obamacare exchanges that are now in shambles—and the final price tag for salvaging them may go sharply higher.” 

Obamacare Exchanges Squander Taxpayer Dollars By the Boatload
Writing in Forbes, Christopher Conover, Yevgeniy Feyman, and Katherine Restrepo examine the surprising cost of Obamacare exchanges and the taxpayer costs of their failures. “The nearly $7.5 billion shoveled out to states for Exchange operations likewise appears to have created some pretty perverse incentives in at least some states,” they write. “What appears to be uncontestable is an age-old truism about human nature that Milton Friedman warned us about decades ago: very few people spend other people’s money as carefully as they spend their own.” 

Obamacare’s Failed State Exchanges
Peter Suderman of the Reason Foundation reports the federal government spent more than $1.2 billion on state-based online Obamacare-exchange insurance portals that remain broken. 

Thanks to Obamacare, Your Tax Dollars Are Rewarding Failure
Genevieve Wood of The Heritage Foundation discusses the Obamacare health insurance exchanges, their costs, and their failure to attract enough enrollees to remain viable in the long term. 

Actually, Obamacare State Exchanges Have Wasted $1.2 Billion
Phil Kerpen of The Federalist criticizes media reports of the amount states admit to having already spent on the Obamacare exchanges, instead of including the amount federal taxpayers have been forced to send to the states. Using the claimed spending understates the burdensome cost of the exchanges, Kerpen notes. 

Policy Tip Sheet—State Health Insurance Exchanges
Heartland Institute Legislative Specialist Kendall Antekeier outlines the arguments against state health insurance exchange implementation and provides facts about previously attempted exchanges. Antekeier writes, “If a state moves forward with implementing an exchange, it could invest valuable time and taxpayer dollars in developing a system only to discover it does not comply with final federal regulations.” 

State Insurance Exchanges: The Case Against Implementation
Health Care News Managing Editor and Heartland Institute Research Fellow Benjamin Domenech outlines several reasons states should avoid implementing a health insurance exchange. He writes, “Any exchange created to pass muster with HHS Secretary Kathleen Sebelius and the current rules within Obama’s law will be fundamentally flawed.” 

Research & Commentary: Lessons from Massachusetts and Utah Insurance Exchanges
This Research & Commentary outlines two states’ experiences with health insurance exchanges, finding they have not produced the desired results but instead increased state health care costs. Heartland Institute Senior Fellow Peter Ferrara is quoted explaining how the Massachusetts exchange increased costs by 42 percent in less than three years.

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 Institute Web site, contact Heartland Institute Government Relations Director John Nothdurft at [email protected] or 312/377-4000.