JAMA Forum: States Wrangle Over Obamacare’s Health Insurance Exchanges

Aaron Carroll, MD, MS

Aaron Carroll, MD, MS

Way, way back in the long ago, when Obamacare was just a bill and not yet a law, a robust debate was conducted on how the health insurance exchanges should be set up. Most people who supported the bill in one form or another agreed that we needed the exchanges. They would provide the marketplace where we could pool people who were not receiving insurance through their employers. These types of collectives were common in countries that rely on private insurance companies to achieve universal coverage, and they are exemplified by the Massachusetts Health Connector, where individuals buy insurance in that state if they don’t get it through their jobs.

The 3 general rules of an exchange are clear. Insurance companies must offer policies to everyone, whether they have chronic conditions or not, a policy called “guaranteed issue.” They have to offer policies at similar prices regardless of chronic conditions, sex, or race, a policy called “community ratings.” If people earn too little to afford insurance, they are provided tax credits—subsidies—to offset the costs of premiums. On these 3 rules, general agreement has existed among those who supported reform efforts, even from the start.

Sure, there were some differences in the details. Some people wanted the subsidies to go to people making up to 400% of the federal poverty line. Others wanted the cap to be lower. Some wanted to place everyone making more than 100% of the poverty line in the exchanges and enroll those lower than that in Medicaid. Others wanted that minimum to be set at 133% of the poverty line. There were lots of arguments over whether the exchanges should offer a “public option,” a government-administered health insurance plan.

But the biggest and most technical disagreement on the exchanges had to do with their general setup. Should there be 1 national exchange or many more state-based or regional exchanges?

Some people, especially those who leaned towards the progressive side, argued that a national exchange made more sense. They believed that pooling all uninsured individuals into 1 group would make insurance a less risky enterprise and reduce the cost of premiums. They thought it would eliminate redundancies in the system and allow for economies of scale to lower the cost of reform. They also thought that removing control from individual states, some of which opposed health care reform, and centralizing it under the federal government’s auspices, would increase the chances of the law succeeding.

Many people in the Senate, especially those from more conservative states, felt different. They were skeptical about allowing insurance, something that has usually been regulated at the state level, to be suddenly given over to the federal government. They argued that even at the state level, pools would be more than large enough to remain stable. They also felt that states would be best equipped at a local level to innovate and take advantage of regional differences to improve the marketplace.

In the end, the progressives in the House lost. The Senate plan for state-based exchanges prevailed, especially after the election of Scott Brown to the Senate removed the 60th Democratic vote there. That outcome froze in place the Senate bill that would eventually, with minor modifications, become law. Exchanges would be located in the states, unless they could not or chose not to create them. In such cases, the federal government would take over.

As long as the survival of the law appeared fragile, many states decided to gamble on not setting up exchanges. Hoping that the law might be struck down last spring by the Supreme Court or its repeal made possible by the recent election, conservative governors dragged their feet in setting up exchanges, making it less likely that they would be able to retain control if Obamacare survived. The last year has shown us that it will almost certainly be here to stay.

But today, an odd turn of events has unfolded in the world of exchanges. It’s the liberal states that have chosen to create their own insurance exchanges. Most states run by conservative governors have chosen not to create exchanges and have left them up to the federal government. Some have done this out of protest against the law in general, often in its entirety; they have resolved not to appear to be supporting its enactment in any way. Others have decided that the local exchanges are an unfunded mandate that they don’t want to pay for and would rather the expense be borne by the federal government.

Regardless, some people are portraying every state’s refusal to set up an exchange as a blow to the law. I’m not so sure. It’s true that the federal government is playing catch-up in setting up the regulations for a national exchange. It’s also true that there are some very real issues involving the subsidies and national exchanges that must be resolved in the coming year.

The arguments for and against the national exchange still hold, though. There were good reasons to prefer one before, and the fact that states have switched sides for political reasons doesn’t change those rationales. The media may like to portray a preference for a federal exchange rather than a state-based one as a blow to progressives and their hopes for the law. But progressives may just be getting what they had wanted in the first place.


About the author: Aaron E. Carroll, MD, MS, is a health services researcher and the Vice Chair for Health Policy and Outcomes Research in the Department of Pediatrics at Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll.

About The JAMA Forum:  JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.

Categories: Caring for the Uninsured and Underinsured, Health Policy, The JAMA Forum