State-Run Obamacare exchanges careening toward disaster

This year was supposed to be the first wherein Obamacare’s state-based insurance exchanges would be self-sufficient. By now, the law’s architects assured, the exchanges would be thriving, competitive marketplaces, where all Americans could secure affordable coverage.

It hasn’t worked out that way.

Two of the original 17 state exchanges have failed. Half of those that remain are struggling financially.

After getting $5 billion in federal grants, most of the state exchanges have turned out to be a disastrous mix of runaway spending on technology, lower-than-expected enrollment, huge overhead costs, and looming bankruptcy.

Take the Covered California exchange. Despite receiving $1.1 billion in federal money, the exchange faced severe technological problems in its first year. Investor’s Business Daily has reported that shoppers are complaining about long hold times and difficulty cancelling or making changes to health plans.

It’s no wonder people are fleeing the exchange. Just two-thirds of those who bought coverage through Covered California in 2014 re-enrolled in 2015.

The Golden State’s exchange also faces an $80 million deficit for the next fiscal year, after 300,000 fewer people enrolled than expected.

Things are so bad that Covered California’s executive director, Peter Lee, recently admitted that the “long-term sustainability of the organization” remains an open question.

New York’s exchange is also floundering. Gov. Andrew Cuomo tried to impose a $69 million fee on all insurance plans sold in the state to fund the state’s exchange. But even his allies in the legislature failed to back his plan — and shot it down in late March. As Democratic Assemblyman Richard Gottfried explained, “Insurers would simply pass the cost along to customers.”

As federal grants run out, it’s unclear where funding for the Empire State’s exchange will come from in the future.

Minnesota has become a textbook example of throwing good money after bad.

In March, Gov. Mark Dayton announced plans to spend $500,000 on a special task force to determine if the state’s MNSure exchange had a financial future. Just two months earlier, the exchange got a $34 million infusion in federal tax grants to help keep it going, on top of the $41 million it received in late 2013. All told, federal taxpayers have dumped more than $189 million into MNSure.

For all that, the Minnesota exchange has managed to sign up only 61,000 people. That’s 40 percent below what it had hoped to enroll.

Rhode Islanders, too, are suffering from their leaders’ decision to embrace Obamacare. Gov. Gina Raimondo wants to slap a new 3.8 percent surcharge on all individual insurance plans sold in the state, and a 1 percent fee on plans bought by small employers. The tax revenue would help pay the $30.9 million it costs to run HealthSourceRI, which currently has all of 30,000 customers. That translates into $1,030 in overhead costs per enrollee.

Vermont’s per-enrollee costs are even worse. Its exchange will need $51 million a year to provide insurance to fewer than 32,000 enrollees — or $1,613 per enrollee in overhead.

Before Obamacare, $1,600 would have been enough to pay the entire annual premium for some individual insurance plans.

Washington State exchange officials may be breaking federal law. In late April, the Inspector General at the federal Department of Health and Human Services accused the Evergreen State of spending $10 million in federal grants on overhead — despite the fact that the law requires that grant money go toward design, development, and implementation of the exchange.

Despite this misappropriation of funds, Washington’s exchange still faces a deficit of $4.5 million.

Elsewhere, the federal government is threatening to take over Hawaii’s state exchange, and Colorado is considering dumping its marketplace in favor of the federally run

Given all the headaches, a number of states are considering offloading responsibility for their exchanges to the federal government. But that exit path may not be as appealing if the Supreme Court rules this summer that subsidies for the purchase of insurance are only available through state-operated exchanges in King v. Burwell.

States could have to choose between absorbing millions of dollars in losses running their own exchanges — or depriving their residents of subsidies by sending them into the federal exchange.

They can’t afford the former — and the latter may prompt open public revolt. Perhaps that will be enough to convince Congress to repeal Obamacare altogether and replace it with market-based reforms that empower patients. Those would actually make sense.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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