Tags: Next Bailout | State-run | Obamacare | Exchanges

The Next Bailout: State-run Obamacare Exchanges

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Friday, 31 July 2015 07:18 AM Current | Bio | Archive

Most of the 12 remaining state-run and the District of Columbia Obamacare exchanges are almost out of their federal start up funds, hemorrhaging money, and will need a bailout.

When the Affordable Healthcare Act was passed, it gave states the option of creating their own Obamacare insurance exchanges or using the federal HealthCare.gov exchange. The Feds offered two incentives: $5 billion in start up grants and subsidies for premiums for enrollees getting insurance through state-run exchanges.

It should not come as a surprise that most state-run exchanges are a huge financial mess. For example, Hawaii received $205 million in federal funds for start up costs. It has spent $140 million to enroll 8,200 people or slightly over $17,000 per enrollee. To make ends eventually meet, the exchange charges a fee to the insurer for every enrollee. Those fees fall far short to making the Hawaii exchange self sustaining.

What have states been doing if their exchanges are not financially viable? They shift the burden to the federal taxpayer, of course. 5 of the original 17 states have shut down their exchanges and instead have begun using the federal HealthCare.gov exchange. Over half of the remaining 12 state-run exchanges and the District of Columbia are in horrible financial shape and will likely do the same.

The recent Supreme Court decision will help accelerate this trend. Now that subsidies can be issued from both state-run exchanges and the federal exchange, states have little incentive to maintain their own exchange.

And if they are losing money, their likely options are to ask for a bailout from the federal government, force a bail-in by raising taxes on state taxpayers or by raising fees paid by insurers, or close down and shift the burden to the federal government and therefore the federal taxpayer.

The federal HealthCare.gov is no bargain either. Costing somewhere between $2 billion and $6 billion (unclear because of lack of transparency and accountability), its launch was nothing short of a catastrophe.

Many of the kinks have been worked out since then but expect huge back end problems as it tries to communicate enrollment and subsidy information with insurance company computer systems. One thing is certain: expect costs to increase as it takes on the responsibilities of failed state-run exchanges.

From a business perspective, the exchanges have been a failure. For example, customer acquisition costs for health insurance exchanges to the private sector are several orders of magnitude lower than Obamacare exchanges.

But government exchanges do not have to compete or go out of business.

Instead, they can shift costs to the federal taxpayer, who is expected to shoulder the burden of bailing out yet another failed government program.

About the Author: Edmund C. Moy
Edmund C. Moy is the Chief Strategist of Fortress Gold Group and was the 38th Director of the United States Mint (2006-2011). He can be followed on Twitter @EdmundCMoy.

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Most of the 12 remaining state-run and the District of Columbia Obamacare exchanges are almost out of their federal start up funds, hemorrhaging money, and will need a bailout.
Next Bailout, State-run, Obamacare, Exchanges
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2015-18-31
Friday, 31 July 2015 07:18 AM
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