The term “health insurance exchange” (also known as a “health insurance marketplace”) has become part of the mainstream conversation about health insurance and healthcare reform over the last few years. The Affordable Care Act (ACA), passed in March 2010, called for the creation of an exchange in each state, but the practical implementation of those exchanges varies considerably from one state to another. As a result, questions about what the exchanges are, what they offer, and how they work, are still widespread. And as with most aspects of the ACA, health insurance exchanges became yet another battleground in the political fight over the ACA.
Twenty-seven states joined a federal lawsuit in 2010/2011 trying to overturn the ACA, but in 2012 the Supreme Court upheld all but one of the challenged provisions (the ruling in that case allowed ACA implementation to move forward, but made Medicaid expansion optional for each state, effectively creating the Medicaid coverage gap that still exists in 18 states).
Although the Supreme Court ruled that the bulk of Obamacare was constitutional, many states continued to resist the ACA by refusing to act on health insurance exchanges. And some states simply felt that creating their own exchanges would be too costly or administratively burdensome, and opted to leave the heavy lifting to the federal government. There have also been technical issues over the last few years that have caused some states to adjust their exchange model for logistical — rather than political — reasons.
And now, as 2017 gets underway, the future of the exchanges is very uncertain. President-elect Donald Trump promised to repeal the ACA and replace it with something new. And Republicans in Congress have been pushing to repeal the ACA ever since it was enacted. Our blog has more information about what to expect under the Trump Administration, but for the time being, nothing has changed.
The exchanges are all functioning just as they were in 2016 (with a few minor changes, detailed below). Subsidies are still available in the exchanges for 2017, and individual market coverage continues to be guaranteed issue, regardless of pre-existing medical conditions.
Initially, there were only two options from which states could pick: A state could run its own exchange (state-based exchange, or SBE) or it could opt to have the federal government run the exchange (federally-facilitate exchange, or FFE).
Then in the summer or 2011, HHS added a state partnership exchange model as a variation of the federally-run exchange. In a partnership exchange, enrollment is conducted through Healthcare.gov, and the state uses the federal call center, but the state can retain functions like outreach and education, as well as oversight of participating plans.
In early 2013, HHS also allowed for a marketplace plan management exchange, which is another variation of the federally-run exchange. States utilizing this option are generally categorized together with the states that have left the entire process to the federal government, but they retain plan management functions, which includes certification of plans that are sold in the exchange, as well as monitoring and regulatory control over the plans that are sold (similar regulatory processes were already undertaken by insurance commissioners in many states prior to the implementation of the ACA).
In June 2013, HHS also outlined provisions for a state to operate a bifurcated exchange, with the state running the small business (SHOP) exchange, and the federal government running the individual exchange. Initially, only Utah took this approach, but Mississippi started running its own SHOP exchange in May 2014, and Arkansas began running its own SHOP exchange in November 2015.
For states that want to run their own exchange but also rely on the economies of scale and technological success of Healthcare.gov, another option is a supported state-based exchange, which is considered a variation of the state-run exchange model. In a supported exchange, the state is in charge of its own exchange, but enrollment is done through the Healthcare.gov platform (the current terminology used by HHS to describe these exchanges is “state-based exchange on the federal platform,” or SBE-FP).
This option was created once it became obvious that Idaho and New Mexico – both of which had received conditional approval to run their own exchanges – wouldn’t have their own enrollment platforms ready to go by October 2013. And the SBE-FP model has subsequently been adopted by states that struggled to efficiently run their own enrollment platforms. Starting in 2017, HHS is charging a fee (1.5 percent of premiums, increasing to 2 percent in 2018) for SBE-FPs’ use of HealthCare.gov. Prior to 2017, state-run exchanges that used HealthCare.gov did not have to pay for the enrollment platform service.
While some states began evaluating the options nearly immediately after President Obama signed the ACA into law, others charged the federal government hadn’t provided enough information to support a decision and that none of the options gave states any meaningful control. Knowing the political leanings in a state made it fairly easy to predict how states would proceed.
How states approached the exchange decision
Early adopters – A handful of states jumped into exchange planning shortly after the ACA passed. California was the first state to pass legislation authorizing an exchange – doing so in September 2010. Colorado, Connecticut, Hawaii, Maryland, Oregon, Vermont and Washington all authorized state-run exchanges in 2011. Massachusetts and Utah were operating exchanges prior to ACA, and both began moving ahead on changes needed to comply with ACA requirements.
In general, it was blue states that moved quickly to establish state-run exchanges in time for the first open enrollment period that began in October 2013, and many of the early adopters had Democratic governors.
Pragmatists – A number of states took a pragmatic approach. Despite the uncertainty about the ACA in general and exchange requirements in particular, the pragmatists did enough work to keep their options open.
In some cases, legislatures failed to authorize exchanges, yet federal grants were accepted and spent as executive branches authorized significant planning work to proceed. Minnesota is a good example. While the Republican-controlled legislature failed to authorize an exchange in 2011 or 2012, Democratic Gov. Mark Dayton’s administration made quiet, extensive progress on an exchange.
Dayton used an executive order to appoint a task force that began working in October 2011, and Minnesota was awarded about $75 million in federal grants. In November 2012, Minnesota submitted a letter of intent and blueprint for a state-run exchange. The November elections returned both the House and the Senate to Democrats, who passed exchange legislation in March 2013, and MNsure was operational when open enrollment began in the fall of 2013 (albeit with considerably technology problems, as was the case for many exchanges).
Some states remained opposed to the ACA, but took the position that if the state must have a health insurance exchange, it would better for the state — as opposed to the federal government — to have control over it. Idaho is an example. Republican Gov. Butch Otter is on record opposing the ACA. However, shortly after the Supreme Court upheld most ACA provisions in 2012, Otter established workgroups to consider a state-run exchange and expansion of the Medicaid program. Otter announced in December 2012 that Idaho would run its own exchange, although the state used the federal enrollment platform in 2014 and didn’t launch their own enrollment platform until the second open enrollment period.
Passive resisters – A few Republican-controlled states took the approach opposite to that of Idaho: they were opposed to the ACA and did little or nothing to establish an exchange. States in this category include Pennsylvania, South Dakota and Wyoming. All three eventually opted for federally run exchanges.
Active resisters – A number of states – mostly led by Republican governors adamantly opposed to the ACA – said early and often that they would not implement state-run health insurance exchanges. Alaska, Florida, Louisiana, South Carolina and Texas are all examples.
Alaska and Louisiana have since elected Democratic Governors who have expanded Medicaid, but with HealthCare.gov running smoothly and efficiently by mid-2014, and with the significant financial costs involved, there was no longer much incentive for states to establish their own exchanges. Indeed, Medicaid expansion is a much more important aspect of state-based ACA implementation at this point, since HealthCare.gov provides the same private plan options and subsidies that enrollees would have under a state-run exchanges, while states’ continued rejection of federal funding for Medicaid expansion means that more than 2.6 million people have no realistic access to coverage.
The active resister states turned down and returned federal grant money for exchange planning. Some have passed laws and constitutional amendments banning a state-run exchange. Oklahoma fought bitterly against the ACA in the court system, with Attorney General Scott Pruitt arguing that the employer mandate and the ACA’s premium subsidies are both prohibited in states — like Oklahoma — that have a federally-run exchange.
For 2014, 16 states and Washington D.C. opted for state-run health insurance exchanges, seven states established state-federal partnerships, and 27 states opted for the federal exchange. Although most states are still following the same model they used in 2014, there have been a few changes in the ensuing three years. See what type of exchange your state currently has.
By the start of the 2016 open enrollment period (November 1, 2016), four state-run exchanges were functioning as SBE-FPs: New Mexico (which has used the federal platform from the beginning), Nevada and Oregon (both of which made the transition for 2015), and Hawaii (switched to the federal enrollment platform for 2016). New Mexico had intended to use the supported model for 2014 only, but in early 2015, the exchange board decided that continuing to use HealthCare.gov for enrollment was in the exchange’s best interest.
Nevada and Oregon both struggled with serious technological problems in 2014, and HealthCare.gov allowed their enrollment and re-enrollment process to go much more smoothly in 2015. Hawaii maintained their own exchange enrollment platform in 2014 and 2015, but ultimately opted to become an SBE-FP due to funding problems. So for 2016, there were only 13 states that ran all aspects of their own exchanges. But Idaho – which had a supported state-based exchange model in 2014 – is among them, and has been running its own enrollment platform since the second open enrollment began in the fall of 2014.
For 2017, there were some additional changes that took effect when open enrollment began on November 1, 2016:
- Arkansas became an SBE-FP, after having a partnership exchange for the individual market during the first three years of exchange enrollment.
- Kentucky became an SBE-FP, after three years of running a successful exchange that was fully state-based. Kentucky elected a new governor who took office in early 2016, and he campaigned on an anti-Obamacare platform. Since taking office, Governor Bevin has taken steps to roll back ACA implementation in the state, including the switch to using the HealthCare.gov enrollment platform.
- Hawaii now has a federally-run exchange, although the state has retained some plan management functions. For 2014 and 2015, Hawaii had a state-run exchange. For 2016, they had an SBE-FP. But for 2017, they have a fully federally-run exchange.
In 2017, there are six partnership exchanges and 28 federally-run exchanges. Among the states that have a federally-run exchange, eight have marketplace plan management exchanges: Hawaii, Kansas, Maine, Montana, Nebraska, Ohio, South Dakota, and Virginia.
For the first half of 2015, there was significant concern about the King v. Burwell lawsuit among states with federally-run exchanges and partnership exchanges. The lawsuit hinged on the argument that the ACA only allows for subsidies to be provided by exchanges “established by the state.” Since subsidies are a cornerstone of every state’s exchange, the prospect of losing those subsidies was alarming; several states considered the possibility of building their own exchanges if subsidies were to be eliminated. But on June 25, 2015, the Supreme Court ruled 6 – 3 that subsidies are legal in every state, regardless of whether the state or federal government runs the exchange.
Arkansas, Pennsylvania and Delaware received conditional approval from HHS to create state-run exchanges in the lead-up to the King v. Burwell ruling. Pennsylvania and Delaware dropped those plans once the Supreme Court ruled that subsidies could continue to be provided via the federally-run exchange. But Arkansas moved forward with their plan to operate an SBE-FP.