State-Based Versus Federally-Facilitated Health Insurance Exchanges of the Affordable Care Act: A Qualitative Analysis of State Decision-Making

Abstract

Health Insurance Exchanges are a key provision of the Affordable Care Act. The ACA allows states the option to design and to implement a state-based exchange using federal grants. Many states, however, have decided not to create their own exchanges and, consequently, have defaulted to a federally created and operated exchange. State decision-making regarding exchanges is a recent topic with little, clear analysis of the factors that led to states' decisions. This paper attempts to answer the question: Why did so many states default to the federal exchange while others have been successfully implementing state-based exchanges? Since there is no comprehensive analysis of the factors that were and were not integral to states’ decisions regarding the creation of exchanges, the primary purpose of this paper is to explain the general trend of conservative states defaulting to the federal exchange. The factors that state leaders claim to have considered in their decisions include the extent and speed of federal regulatory guidance, the amount of information available about the Federally-facilitated exchange and the ability of their states to successfully implement state exchanges. By analyzing these claims through reports on state actions, through comparisons with states that are creating their own exchanges and through interviews with health insurance exchange experts, these claims from conservative state leaders appear that they were not, by themselves, the deciding factors for most states. Additionally, conservatives may be ideologically opposed to the ACA, but they historically have favored state control over federal control of health insurance exchanges. Some states explicitly opposed state-based exchanges for political purposes. For other states, conservative assertions about the prohibitory nature of limited federal regulations, the short exchange-planning timeline, and the lack of information about the federal exchange were resultant of the prevailing political atmosphere. Overall, politics, practiced by both the states and the federal government, was at the core of states' decisions to either implement state-based health insurance exchanges or default to the federal exchange. Although states could benefit more from tailored state-based exchanges than from a federal exchange, the states that would have benefitted the most from the ACA also were the states that defaulted to the federal exchange. Politics, however, explains why some conservative states sacrificed state-based exchanges in order to obtain the greater benefits of the Medicaid expansion. Most tellingly, despite defaulting to the federal exchange, several conservative states have been attempting to take control of some functions of their exchanges without officially operating partnership exchanges. This arrangement demonstrates both states’ willingness to take responsibility in their exchanges and the politics that has prevented them from officially collaborating with the federal government.