State Exchanges and the Cost of ObamaCare
By Ryan Riebe
In his second inaugural address on January 21, 2013, President Barack Obama stated that “we must make the hard choices to reduce the cost of health care and the size of our deficit.” With regard to health care, all indications are that the price of health insurance will increase as a result of ObamaCare, with the federal government attempting to pass along these costs to the states by asking them to implement state-run health insurance exchanges.
Currently, 27 states have decided to avoid implementing state-run exchanges in favor of federal health insurance exchanges. What is the motivation behind these decisions at the state level? The simple answer is that state-run exchanges are an attempt by the federal government to pass on the cost of ObamaCare to the states, while offering states no control over their own exchanges. Given the high costs of state-run health insurance exchanges and the potential for even higher costs as the price of insurance increases under ObamaCare, it is no surprise that states want to avoid the significant financial burdens associated with implementing their own health insurance exchanges.
Nebraska is a perfect example of a state eager to avoid the high costs that a state-run health insurance exchange would bring to the Cornhusker State. In the November 2012 press release in which Nebraska announced that the state would participate in a federal health exchange, it was revealed that a state-run health insurance exchange would cost the state an estimated $646 million from 2013 to 2020 for an average annual cost of nearly $81 million. For comparison, a federal health insurance exchange in Nebraska would cost the federal government only $176 million over the same period, a difference of $470 million over the course of eight years. Of the cost difference between state-run and federal-run exchanges, Governor Dave Heineman stated that “it is simply too expensive to do a state insurance exchange.”
In New Jersey, Governor Chris Christie vetoed a measure passed by the New Jersey legislature which would have created a state-run health insurance exchange. Estimates show that such a state-run exchange would have cost New Jersey $100 million dollars each year in operating costs. In justifying his veto, Governor Christie wrote in his message to the New Jersey Senate that “financing the building and implementation of a State-based Exchange would be an extraordinarily costly endeavor,” and that “the total price for such a program has never been quantified, and is likely to be onerous.” By vetoing legislation which would have set up a state-run exchange for New Jersey, Governor Christie was able to avoid a burden of $100 million for the taxpayers in his state, a burden that would certainly increase over time with the rising price of health insurance as a result of ObamaCare.
Wisconsin, led by Governor Scott Walker, is another state which has acted to avoid the high costs that would result from the implementation of a state-run health insurance exchange. Estimates from the Walker administration indicate that implementing a state-run health insurance exchange in Wisconsin would lead to an annual operating cost between $45 million and $60 million. For Governor Walker, the estimated annual cost would be too much to pass along to taxpayers, saying that “if the state option is chosen…Wisconsinites face risk from a federal mandate lacking long-term guaranteed funding.” By avoiding the $45 million to $60 million annual costs associated with a state-run exchange, Wisconsin is also avoiding the potential for higher annual costs in the future, with estimates showing that ObamaCare will lead to an average increase in individual insurance premiums in the state of 30 percent by 2016.
In Ohio, estimates from the state’s Department of Insurance indicate that setting up a state-run health insurance exchange would cost as much as $63 million, followed by costs of $43 million to run the exchange each year. Among the reasons why Ohio decided to avoid a state-run exchange, Governor John Kasich lists “higher health insurance costs, significant uncertainty in [Ohio’s] insurance market and major new costs to states.” Instead, it will cost the federal government only $21 million to set up its health insurance exchange in Ohio, with smaller operating costs than those which the state of Ohio would have incurred with a state-run exchange. In addition to avoiding the cost of implementing ObamaCare from being passed along to them by the federal Government, Ohio is also avoiding the possibility of higher annual operating costs in the future. According to projections from the Ohio Department of Insurance and the actuarial consulting firm Milliman, it is estimated that individual health insurance premiums in Ohio will increase by 55 to 85 percent by 2017.
When ObamaCare became law, no funds were authorized by congress to pay for federal health care exchanges, a major reason why the federal government is attempting to pass along the cost of ObamaCare to each individual state. Despite President Obama’s goal to reduce the cost of health care, ObamaCare is poised to do the opposite, increasing the cost of health coverage for individuals across the United States. As a result, states which have refused to set up a state-run exchange have put themselves in a position to avoid already-high exchange implementation costs, as well as future operational costs, which will undoubtedly increase as the price of insurance increases across America.