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Research & Commentary: State ACA Exchanges an Expensive Failure

August 1, 2016

In this Research & Commentary, Matthew Glans examines the state of Obamacare exchanges, implementation costs, and expenses related to exchange failures.

Under the Affordable Care Act (ACA), states have been 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 with 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. 

The failure of these exchanges represents an expensive mistake that has cost taxpayers millions of dollars. According to the Government Accountability Office, as of September 2015, none of the 14 states operating their own Obamacare exchanges had a fully functioning system in place. Little to none of the more than $5.51 billion spent to establish the exchanges has been recovered. Americans for Tax Reform (ATR) points to four state exchanges as an example of ACA’s incredible failures: Oregon, Hawaii, New Mexico, and Nevada. These states have failed to pay back any of the $733 million spent to establish their disastrous exchanges, and nationally, state exchanges have returned only $1 million.

ATR says states with partially functioning exchanges – such as Maryland, Massachusetts, Minnesota, and Vermont – still waste tax dollars. ATR supports its claim by pointing to an investigation led by House Energy and Commerce Oversight Subcommittee Chairman Tim Murphy (R-PA) that found these exchanges are not sustainable and that some may have improperly kept user fees despite ending their operations.

The state exchange failure receiving the most attention is Covered Oregon. Despite having a mid-sized population to serve, Cover Oregon cost more than $300 million to establish, making it the third-most expensive, behind only New York and California, which have much larger populations.

One component of the exchanges experiencing the highest rate of failure is the Consumer Oriented and Operated Plans (CO-OP). CO-OPs were designed to improve competition in the health care insurance marketplace and on the new health insurance exchanges by offerings low-interest loans to groups to maintain their newly created health plans. CO-OPs receive a substantial subsidy from the federal government in the form of loans; which were supported initially by a one-time $3.8 billion appropriation provided by ACA.

Despite the substantial amount of money spent on them, the majority of CO-OPs have failed. Of the 23 CO-OPs set up by 2013, only seven remain. Illinois’ Land of Lincoln Health was the most recent to collapse.

While health insurance has been made available to more people under ACA, the cost of health care continues to rise, making the new coverage unaffordable for many families. According to recent data provided by the Robert Wood Johnson Foundation and Freedom Partners, “only five states and Washington, DC saw average Obamacare exchange deductibles decrease from 2015 to 2016. Twenty-one states had average Obamacare deductibles rise by $300 or more, including eight states with deductible increases topping $500.”

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 of Obamacare exchanges, implementation costs, and expenses related to exchange failures.
 

Ten Principles of Health Care Policy
https://www.heartland.org/publications-resources/publications/ten-principles-of-health-care-policy?source=policybot
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. 

Obamacare’s Failed State Exchanges
http://reason.com/archives/2014/02/27/obamacares-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. 

Policy Tip Sheet – State Health Insurance Exchanges
https://www.heartland.org/publications-resources/publications/policy-tip-sheet---state-health-insurance-exchanges?source=policybot
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.” 

Failed State Exchanges Have Returned Just $1 Million to Taxpayers
https://www.atr.org/failed-state-exchanges-have-returned-just-1-million-taxpayers
Mireille Olivo of Americans for Tax Reform discusses a new report by the Government Accountability Office that found the Centers for Medicare and Medicaid Services has failed to conduct sufficient oversight over state-based Obamacare exchanges.

Research & Commentary: Affordable Care Act CO-OPs Are Failing
https://www.heartland.org/publications-resources/publications/research--commentary-affordable-care-act-co-ops-are-failing?source=policybot
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines the growing failure of ACA’s CO-Ops. “State legislators should keep a close eye on their CO-OPs and avoid investing more taxpayer dollars in CO-OP programs that have not generated positive results. Herrick cautions state insurance regulators and other regulators to be on the watch for CO-OPs that employ strategic plans that are designed to lose money in an attempt to gain market share, all while expecting a bailout when things go horribly wrong,” Glans wrote.

Obamacare: Rewarding States for ACA Exchange Failures?
https://reason.com/archives/2016/03/03/obamacare-rewarding-states-for-aca-excha
Veronique de Rugy writes for the Reason Foundation about the millions of dollars that have been wasted on state ACA exchanges, as well as the lack of federal oversight and the absence of consequences for the state-based exchanges’ failures. “We will most likely continue to pick through the smoldering rubble of the Affordable Care Act for many years to come in search of lessons for future policymaking. One such lesson clearly should be that funneling large sums of federal money to state governments with limited oversight provides fertile ground for waste and political graft,” writes de Rugy.

State Insurance Exchanges: The Case Against Implementation
https://www.heartland.org/publications-resources/publications/state-insurance-exchanges-the-case-against-implementation?source=policybot
Former 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.” 

The Obamacare Evaluation Project: Access to Care and the Physician Shortage
https://www.heartland.org/publications-resources/publications/the-obamacare-evaluation-project-access-to-care-and-the-physician-shortage?source=policybot
Analyzing changes in access to primary care physicians under the Affordable Care Act, Paul Howard and Yevgeniy Feyman of the Manhattan Institute find population growth, demographic changes, and an expansion of insurance spurred by Obamacare will contribute to a significant shortage in primary care physicians over the coming decade. 

Obamacare’s Impact on Doctors – An Update
http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-doctors-an-updat
In this Heritage Foundation Issue Brief, Alyene Senger outlines several effects of Obamacare on doctors: “Specifically, physicians will be subject to more government regulation and oversight, and will be increasingly dependent on unreliable government reimbursement for medical services. Doctors, already under tremendous pressure, will only see their jobs become more difficult.” 

Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured
https://www.heartland.org/publications-resources/publications/studies-show-medicaid-patients-have-worse-access-and-outcomes-than-the-privately-insured?source=policybot
In this Heritage Foundation Backgrounder, Kevin Dayaratna states it is becoming increasingly difficult for Medicaid patients to find access to primary and specialty care physicians. When Medicaid patients are admitted to hospitals, they often arrive with more serious conditions than those with private insurance. By expanding this broken program, Obamacare will only exacerbate the problem. Policymakers should reform Medicaid to allow recipients access to private insurance in a consumer-driven market, Dayaratna writes. 

Impact of Medicaid Expansion on Hospitals: Updated for Second Quarter 2014
https://www.heartland.org/publications-resources/publications/impact-of-medicaid-expansion-on-hospitals-updated-for-second-quarter-2014?source=policybot
The Colorado Hospital Association found emergency room visits increased three times as rapidly in states that expanded Medicaid under Obamacare than in those that did not. 
 

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 http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org. 

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Nathan Makla, Heartland’s state government relations manager, at nmakla@heartland.org or 312/377-4000.

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Health Care
Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.