State-funded ObamaCare insurance exchange: a bad deal for Illinois

Not only is it optional for states to establish an exchange, but states that defer to a federal exchange will also save upward of $100 million annually in exchange costs.

Diane Cohen
General Counsel
Liberty Justice Center

The Patient Protection and Affordable Health Care Act, or ObamaCare, provides that if states do not establish a state-funded health insurance exchange by 2014, the federal government will do it for them. Not only is it optional for states to establish an exchange, but states that defer to a federal exchange will also save upward of $100 million annually in exchange costs.

This heavy financial burden may explain why after nearly three years have passed since ObamaCare’s enactment, only 17 states, plus the District of Columbia, have committed to establishing an exchange. The remaining 33 states are either defaulting to a federal exchange or going the federal-state partnership route – two virtually identical options. Illinois, which is starting with a federal-state partnership exchange, reportedly will take over the funding of the exchange in 2015. But why on earth is our state taking on this financial burden when it doesn’t have to?

Perhaps our elected officials are being swayed by the myth that states must establish an exchange in order to preserve state control. But this myth is refuted by the express language of ObamaCare itself, which provides that a state exchange may not establish rules that conflict with the statute or regulations promulgated under it. State-funded exchanges are essentially on a retractable leash: they are only as flexible as the federal government allows them to be at any given time. In other words, a state exchange can do nothing without federal approval, from choosing the insurance companies that  are invited to participate to the plans offered in the exchange. And even then, the federal government can change its mind at any time and direct a state to reverse course. Simply put, a state exchange assumes all the costs with no benefit in return.

It’s not just those opposed to ObamaCare who are saying no to a state-funded exchange. Six states currently led by Democratic governors are also saying no, including Arkansas, Delaware, Missouri, Montana, New Hampshire and West Virginia. It’s possible to be in favor of ObamaCare and support default to a federal exchange.

Based on the cost-benefit analysis alone, there is no compelling reason for Illinois to pick up the federal government’s tab by authorizing the establishment of a state-funded exchange in 2014 or ever.