Much attention has been focused recently on whether states will set up health insurance exchanges under the Affordable Care Act (ACA) as a December 14 “go” or “no-go” deadline looms.
Exchanges are, to be sure, a key element of implementing the ACA. Starting in 2014, individuals and small businesses will be able to go to an exchange—virtually, in most cases, much like an online shopping site—compare benefits and premiums across health insurers, and enroll in the plan of their choosing. Insurers will be required to accept everyone who applies, regardless of whether they have a preexisting health condition. Premiums will not vary by health status as they do today, and the amount they vary by age will be limited. Federal tax credits will also be available to low- and middle-income individuals to make premiums more affordable. The exchange will determine an individual’s eligibility for these tax credits, as well as for Medicaid.
The Congressional Budget Office projects that by 2016, 23 million people will be buying health insurance through exchanges, with 19 million of them receiving tax credits to cover part of the cost.
Yet as of last week, Kaiser Family Foundation tabulations show that 16 states have decided not to build an exchange, while 11 states are still pondering the decision.
So it is possible that in huge swaths of the country, people will be without exchanges and the consumer protections that come with them, right? Not exactly. The law anticipated this possibility and provided a fallback. If a state does not set up an exchange, the federal government will instead run the exchange in that state. There is also the potential for a “partnership” exchange, where the federal government and the state share responsibility, and at last count 6 states were planning to go that route.
There are strong arguments that state-run exchanges are preferable to federal ones. States have historically licensed and regulated health insurance companies, so the oversight and negotiating role exchanges will play fit naturally at the state level. Also, outreach to consumers will be key, and states are likely to do that more effectively than the federal government. But whether an exchange is federally operated, state-operated, or some hybrid, the same rules will apply, so the consumer protections and subsidies will be the same.
The story is quite different regarding the other big decision states now face: whether to expand Medicaid. The ACA originally required that all states operating Medicaid programs (which all now do) would be required to expand Medicaid to everyone with income below 138% of the poverty level (currently $15 415 for a single person and $31 809 for a family of 4). Unlike with exchanges, the law did not provide a federal fallback if states refused to expand coverage because none was thought to be necessary.
However, the Supreme Court ruling in June altered the parameters of that decision dramatically when it said that states could not be penalized for refusing to implement the Medicaid expansion, in effect making it voluntary.
Still, although states are not required to participate, the expansion offers a substantial enticement: the federal government will pay 100% of the cost for the first 3 years, phasing down over time to 90%. States choosing to go ahead will be able to expand coverage to low-income residents for pennies on the dollar, leveraging federal dollars that will save state and local government funds that now go to pay for uncompensated care.
Because states will ultimately have to foot some of the bill if they expand Medicaid coverage, many are still hesitant to do so, out of fiscal or ideological concerns. There is no formal tally yet of states’ decisions about expanding Medicaid, but according to one estimate, as of November 19, 8 states were planning not to take up the expansion, 5 were leaning in that direction, and 21 were still undecided.
The consequences of this decision are significant, not just in fiscal terms but for people, as well. The result in a state deciding not to expand Medicaid would be an odd patchwork of insurance coverage. Many people with incomes below the poverty level—particularly adults without children, but many parents, too—would be ineligible for any assistance, as they are today under Medicaid’s current eligibility rules. At the same time, people who are uninsured but with incomes above the poverty level would be eligible for tax credits to help them afford insurance purchased through exchanges.
According to a study just released by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured, researchers at the Urban Institute estimate that 10 million more poor people would be uninsured if no state took up the Medicaid expansion. That includes 1.2 million in Texas (which does not intend to implement the Medicaid expansion) and 869 000 in Florida (where Gov Rick Scott previously said he was opposed to implementation of all elements of the ACA—although he more recently indicated some openness, at least about health insurance exchanges).
Health insurance exchanges have, in many ways, become synonymous with “Obamacare” in state-level debates. The judgments of governors and state legislatures about whether to go ahead with them are indeed significant ones, in both practical and political terms. The option of federally run exchanges in states that refuse to create them on their own, however, provides a fallback for individuals and small businesses. But without such a fallback for the Medicaid expansion, the consequences for consumers, hospitals, and health professionals in states that decide not to participate are in fact far greater.
About the author: Larry Levitt, MPP, is Senior Vice President for Special Initiatives at the Kaiser Family Foundation and Senior Advisor to the President of the Foundation. Among other duties, he is Co-Executive Director of the Kaiser Initiative on Health Reform and Private Insurance.
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