The Patient Protection and Affordable Care Act, or PPACA, permits but does not require states to establish new bureaucracies, known as health insurance exchanges, to regulate the purchase of government-approved health insurance from government-approved insurance companies. But whether the state decides to create its own exchange, defer to the federal government or create a state-federal partnership, the state can be certain it will have no flexibility or control. If Illinois decides to establish a state-funded exchange, the state must comply with federal rules that will dictate all aspects of exchange operations. In return, Illinois will be left to pay upward of $100 million per year to operate a new bureaucracy under federal control. This report highlights just a few reasons why lawmakers should say no to creating a state-funded exchange.

Illinois is under no obligation to create an exchange.
PPACA permits, but does not require, states to establish health insurance exchanges, which serve as new bureaucracies to regulate the purchase of government-approved health insurance. However, the law does not require states to create these exchanges. In states that do not create exchanges, the federal government may implement its own exchanges. To date, few states have signaled intent to move forward with state-established exchanges. Instead, governors and lawmakers from both parties have elected not to create state-funded exchanges.

States retain no flexibility or control by establishing or operating exchanges.
Federal rules and regulations will dictate all aspects operating the exchanges. As the law itself explains, a state-funded exchange “may not establish rules that conflict with or prevent the application of regulations promulgated” by federal bureaucrats. If the federal government wishes to modify those operations, it can simply amend the rules and force states to comply. If Illinois wishes to modify those operations, on the other hand, it would need special permission from federal bureaucrats. The federal exchanges serve as the minimum baseline for what an exchange must do. As a result, states cannot create an exchange that is better for taxpayers and consumers than the federal exchange. It can only create one that is worse.

A state-funded exchange will be too expensive to operate.
Although federal grants exist to help plan state-funded exchanges, PPACA prohibits all federal funding for operating state-established exchanges after 2014. This means that states that elect to create a state-funded exchange will be responsible for paying the full operating costs in 2015 and beyond. Illinois officials estimate that the exchange could cost state taxpayers nearly $100 million per year. If more people use the exchange than originally anticipated, those annual costs could rise even more, an expense the state simply cannot afford. If Illinois chooses not to create a state-established exchange, it can avoid these expensive operational costs.

There is no rush to establish a state-funded exchange.
The federal government has already extended the deadline to apply for exchange-planning grants numerous times and will likely extend the deadline further. The Department of Health and Human Services recently announced that it will continue to provide access to planning grants for an additional five years. Even if the federal government establishes an exchange in the state, the law permits Illinois to create its own exchange at any time.