Analysis: Few states likely to set up health exchanges

By Paul Demko, Crain News Service

WASHINGTON (March 10, 2015) — During oral arguments before the U.S. Supreme Court on March 4 in King v. Burwell, Justice Samuel Alito suggested that there is a relatively simple fix to the problem of residents in up to 37 states that haven't established their own exchanges potentially losing access to premium subsidies.

“It's not too late for a state to establish an exchange,” Justice Alito said. “So going forward, there would be no harm.”

Justice Alito is correct in the hypothetical sense. If the Supreme Court strikes down subsidies in states without their own exchanges, those states could remedy the fallout by establishing their own marketplaces. But realistically, the logistical, financial and — perhaps most crucially — political hurdles would so significant that few states seem capable of overcoming them.

The only state with plans to develop its own exchange is Arkansas, but that state's Senate voted unanimously on March 4 to put exchange plans on hold until after the Supreme Court delivers its ruling, expected in June.

At least 11 states have legislation pending to authorize the establishment of an exchange, according to the National Conference of State Legislatures (NCSL). They include Florida, Ohio, Pennsylvania, Texas and Virginia, which combined had roughly 4 million enrollments through HealthCare.gov during the sign-up period that concluded last month.

But that shouldn't suggest that those states are on the verge of establishing their own insurance marketplaces, or even that they would do so if the Supreme Court strikes down subsidies. Three of them — Missouri, Tennessee and Virginia — also are among at least 10 states that have legislation pending that would explicitly prohibit establishment of a state-based exchange, according to the NCSL.

Reuters and the Washington Post recently surveyed states to gauge the likelihood of additional state-based exchanges. Both surveys identified a half-dozen states that are at least open to the possibility of creating their own marketplaces, although the reports disagreed on which states fall into that category.

Four states — Maine, Ohio, Pennsylvania and South Dakota — appear on both survey lists and seem the most likely to consider establishing their own exchanges. But all would face significant barriers. In Pennsylvania, for example, Democratic Gov. Tom Wolf has expressed support for establishing a state-based marketplace, if necessary, to access subsidies. But he faces a Republican-controlled state legislature that would make implementation difficult.

Even if states have the political will to move forward with a state-based exchange, they would face financial difficulties, because there are no more federal dollars available to help pay for the exchange development.

The 14 state-based exchanges that are handling their own enrollments have received more than $3 billion from the U.S. Health and Human Services (HHS) department. They are supposed to be financially self-sustaining starting this year, but many are still struggling to establish a reliable funding stream to cover operational costs.

The most feasible blueprint for states that decide to establish their own exchanges could be New Mexico. Legislation was enacted in 2013 establishing the New Mexico exchange, which is overseen by a 13-member board of directors. But in each of its first two years of operations, New Mexico has opted to rely on HealthCare.gov for individual enrollments. No decision has yet been made about future open-enrollment periods in the state.

“Our model has been to be very lean and efficient,” said Amy Dowd, CEO of the New Mexico Health Insurance Exchange.

Nevada and Oregon are now following New Mexico's blueprint after experiencing disastrous state website launches. While the Obama administration has deemed the New Mexico model sufficient to qualify as a state-based exchange, it doesn't necessary follow that the Supreme Court will reach the same conclusion if it decides that subsidies are only available to states with their own marketplaces.

“We're watching it very closely,” Ms. Dowd said. “We'll see how prescriptive and how specific the decisions are.”

Paul Demko writes for Crain's Modern Healthcare magazine, a Chicago-based sister publication of Tire Business.