Many of the states which set up their own health insurance exchanges under Obamacare are facing serious budget challenges in keeping those exchanges running. Some of the states are facing
severe enough challenges to consider abandoning their efforts and joining the federal exchange. That creates even more serious implications for the health of the law should the U.S. Supreme Court decide to strike down federal subsidies for people buying insurance through the federal exchange in the
King v. Burwell challenge it is hearing this spring.
So far, the CMS has dispensed more than $4 billion in grants to help launch state-run exchanges. In December, the agency issued its final round of grants, roughly $265 million to 10 states with existing state-run marketplaces, to assist with technology development and enrollment efforts. Despite the influx of federal funds, many state-based exchanges are facing projected deficits this year and in future years.
Colorado, Oregon and Rhode Island are considering abandoning their state-run exchanges and using the federal exchange because of financial struggles. An independent audit of Colorado's marketplace released in December found lax financial controls resulting in questionable payments and contracts.
State-run exchanges have faced many problems in becoming self-supporting. State legislators have been reluctant to establish or increase fees on premiums to support exchange operations. Solving unexpectedly severe website technology problems has cost a lot of money. In states with fee assessments on exchange-plan premiums, smaller-than-expected enrollment has yielded inadequate revenue. And the problem is circular: Cutting back exchange activities because of budget shortfalls has hurt outreach and sign-up efforts, further reducing enrollment.
Some states underestimated the complexity of creating the complicated databases. Some, like Rhode Island, might not have a large enough population base and enrollee population to provide funding. Even California, with tremendous enrollment success and a really large enrollee population, is facing a potential deficit of about $4 million for 2015-16. Creating these exchanges was a big and complex experiment for states, one that seems to be ongoing. There's the potential for states to combine to create regional exchanges, but the simplest answer for the states in the worst shape is simply to piggyback onto the federal exchange.
It would be the simplest answer, if the fate of the federal exchange—and the subsidies to enrollees in it—wasn't hanging in the balance thanks to the Supreme Court. And again, there's a very simple answer to the uncertainty that the Supreme Court has created. Congress could make a slight change to the one sentence in the law that the challenge hinges on, and make it absolutely beyond question that the purpose of the Affordable Care Act was to make health insurance affordable.
But with House Speaker John Boeher and new Senate Majority Leader Mitch McConnell and his whip John Cornyn all happily looking forward to the law's destruction at the hands of SCOTUS, that's not going to happen. Which means that the estimate that 9.6 million people could lose their health insurance could be hugely underestimated.