The Obamacare case that the Supreme Court will hear next week, King v. Burwell
, immediately threatens subsidies to the states that chose not to create their own health insurance exchanges. If the court rules for the plaintiffs, and subsidies are removed for all but the states that have their own exchanges, one of the solutions for a state is to try to hurry up and replace the exchange. The first obstacle there is politics—many of them don't have their own marketplaces because they refused to do anything that had anything to do with the law, including helping their constituents. The second obstacle might be even greater: exchanges are difficult and expensive to create and maintain
, particularly for—but not limited to—smaller states.
The size of smaller states' markets are small—meaning there’s less revenue from taxes—but they face many of the same fixed costs in maintenance and technology as large states do. Also like their larger counterparts, states like Hawaii, Rhode Island and Vermont plus the District of Columbia can no longer depend on the federal grants they used to initially develop and fund their exchanges. The federal Centers for Medicare & Medicaid Services (CMS) prohibited using those grants toward operations starting earlier this year.
In statehouses over the next several months, debates will rage over how to fund exchanges —but also whether those exchanges are worth maintaining at all, and in what form. The main source of revenue for state-based exchanges comes from fees paid by insurers. Most exchanges, though, are also still counting on at least some financial support from their general funds. California, which has the highest enrollment of any state, is one exception. The state can't use general revenue to fund its exchange, and is now running into an $80 million deficit that could require raising insurer fees from the current $13.95 per policy.
Hawaii's exchange director doesn't expect his state could have a self-sustaining exchange before 2020 or even 2022. That's with a state government and legislature that has fully supported the endeavor. The states which have their own exchanges and are trying to work out these funding issues are also in a holding period now because they don't know what the court is going to do with King
, what the repercussions of having the system crumble in surrounding states will be, and whether switching to the federal exchange could still be an option for them.
With no more federal funding available for states to start up their own exchanges, even if Republican lawmakers in them would be inclined to do so, the structural barriers to creating them from scratch are huge. That's just one more level of chaos the court is considering creating.