Health Insurance Exchanges Will Be Net Plus for States

May 3, 2012 at 5:37 pm

Will health insurance “exchanges” — the state-based marketplaces that health reform calls for to give consumers a choice of private health insurance plans — cost states money? A growing number of state policymakers opposed to creating an exchange in their state say so, but the reality is very different.

Health reform provides federal grants to cover not only all of a state’s costs to set up an exchange but also all of the costs of the first year of operations in 2014.

CBPP’s ongoing tracking of states’ progress on exchanges shows that every state except Alaska has received a grant of up to $1 million for initial exchange planning and that 33 states and the District of Columbia have received grants of up to $58 million to set up exchanges.  The Department of Health and Human Services says that states can receive multi-year grants providing all of the money they will need to set up and operate their exchanges through 2014.

Health reform requires exchanges to be financially self-sufficient after 2014, but it doesn’t require states to pay for them with general revenues, and no state has said that it plans to do so.

Instead, recent federal regulations anticipate (along with several other options) that exchanges will apply a modest fee to the new revenue that insurance companies will generate by selling their health plans in the exchange.  That’s the approach Massachusetts took when it set up its “Connector” — the model for state exchanges — as part of its health reform plan.

Opponents also fail to take into account exchanges’ positive impact on a state’s residents and small businesses.  Through exchanges, individuals and small businesses will be able to choose among a number of quality health insurance options; many will qualify for federally funded assistance to help make such coverage more affordable.

Far from burdening a state financially, a health insurance exchange will produce big gains for individuals and families as well as small employers.

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More About Dave Chandra

Dave Chandra

Dave Chandra is a Senior Policy Analyst at the Center on Budget and Policy Priorities in the Health Policy Department.

Full bio | Blog Archive | Research archive at CBPP.org

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