Obamacare Exchanges are Bleeding States Dry

In four weeks, the Supreme Court will rule on King v. Burwell. A ruling in favor of the plaintiffs invalidates federal insurance subsidies for the 36 states without a state exchange and frees them from the individual and employer mandate. States that built their own exchanges bound their residents to Obamacare's mandates, penalties, and restrictions for the long-term. If the Obama Administration offers Wyoming and the other states without a state exchange insurance subsidies in return for building an exchange, they should not take the bait.

Charlie Katebi and Glenn Woods talk about how state exchanges are failing and states with federal exchanges should think twice about setting one up.

Obamacare currently gives state lawmakers a choice; let the federal exchange serve as their health insurance marketplace or they could build and operate online state health insurance exchange of their own. The federal government even covered all the startup costs of state exchanges until January 1, 2015.

But like most federal-state "partnerships," state exchanges came with strings attached. Is it any wonder that most states decided from the start they would rather leave the operation and maintenance of insurance exchanges to the federal government? States that decided to build their own exchange are discovering these boondoggles cost far more than what was promised.

Of the 17 states that built their own exchange, half are struggling to stay afloat and three have closed permanently. For example, California fell short of their 2015 enrollment goals by 300,000 and only managed to retain 65% of its enrollees from 2014. The Golden State's exchange is now looking at an $80 million deficit. Washington State's health exchange faces a $4.5 million shortfall after enrolling only 80 percent of their goal.

Despite receiving $5.4 billion in federal grants, state exchanges can't pay for themselves and are becoming new unfunded liabilities on state taxpayers. State exchanges require enormous individual sign-ups to recoup their costs but they are failing to successfully enroll individuals that apply.

State exchanges must interact with five federal agencies to verify an individual's citizenship, criminal records, income, and whether they are alive or dead. Using this data, exchanges must calculate in real time who is eligible for insurance subsidies and who is not. But the agencies that state exchanges must communicate with use extremely outdated software, some from the 1970's. When the exchanges fail to automatically interact with federal agencies and break down, the exchanges are forced to hire additional employees to perform these tasks manually, further exacerbating sky high costs. Building an exchange in Wyoming would only replicate failures we've seen in other states.

When government promises don't materialize, everyone else pay the price. The Colorado Exchange's board of directors recently voted unanimously to raise $40 million in additional fees on the Rocky Mountains state's 1.2 million enrollees. Governor Gina Raimondo of Rhode Island wants to introduce a 3.8 percent fee on every individual insurance policy and a 1 percent fee on every small employer plan.

These costs aren't temporary either, they're ongoing. The federal government agreed to pay for start-up costs until January 2015, after which states are responsible for paying all future costs. For Vermont's state exchange to be self-sustaining, for example, it would have to exact additional fees of $1,613 from each enrollee to cover $51 million in annual expenses. Prior to Obamacare, $1,600 could pay for an entire year of premiums. That's right; the exchange administration cost is as much as the insurance itself!

Obamacare's supporters will tell states that King v. Burwell will throw an otherwise effective government program into disarray and they should build exchanges to allow the law to function as intended. The President's healthcare law has been a colossal failure from the start and state exchanges are just the latest chapter in this tragic saga. Despite the billions spent building exchanges, they haven't attracted enough enrollees and are either being shut down or charging higher fees to remain in existence. Our legislature and governor should not throw this albatross around the necks of the people of Wyoming.