The Healthcare Marketplaces

The ACA required each state to have functioning individual and small business marketplaces or exchanges in place by January 1, 2014. The imple- mentation of the small group or SHOP (Small Business Health Options Program) was delayed twice, but was up and functioning in 2016.

The states had the option of creating their own exchange, using the federally facilitated exchange, or establishing a partnership exchange. State-based marketplaces run their own exchanges; these give the states greater flexibility. Initially 17 states established their own marketplaces. Now 11 states operate their own exchanges and another 5 operate their own exchanges while using the online federal platform to undertake enrollment. Partnership marketplaces share functions with the federal government; 6 states take this approach. Initially 26 states used the federally facilitated approach; 28 do so now.

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It may seem surprising that the majority of the states use the federally facilitated model. In my view, this outcome results from the costs of running an exchange and the initial confusion over how an exchange was supposed to operate. The marketplaces are not inexpensive to run. Consulting work for a moderately sized state such as Alabama suggested that some 330,000 people would enroll in an Alabama exchange and the annual cost to run it would be approximately $44.5 million. Next, the states required rather substantial direction from the federal government on how the exchanges were to operate and how to be in compliance with the law and administrative regulation. Unfortunately, the direction was slow in coming. While the fed- eral government paid for the costs of running a state exchange in the first year and provided some start-up money for development, each state’s exchange was to be self-sufficient by the second year of operation. Thus, I believe many governors and legislatures concluded that the costs and uncertainty, together with the blame if the exchange was not functional, led them to default to the federally facilitated model.


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