Unsustainable Exchanges & Subsidies Exposing ObamaCare’s Weaknesses Print
By Ashton Ellis
Thursday, May 28 2015
By the end of this year, there may be fewer than 10 states struggling to maintain their own health insurance exchange.

From financially dubious exchanges to subsidies that aren’t technically legal, ObamaCare is imploding under its own shoddy draftsmanship.

ObamaCare’s state-run exchanges are a great idea – so long as federal taxpayers foot the bill. Since the law was passed in 2010, almost $5 billion in federal start-up grants have been doled out to the states. The idea was to entice state officials with seed money so that ObamaCare’s supporters could shift legacy costs onto state taxpayers. This was just one of the ways long-term ObamaCare projections could be considered deficit neutral, at least at the federal level.

But the sky-high maintenance expenses of running a brand new, technology-intensive health bureaucracy don’t go away when the federal grant money subsides. Instead, states are now feeling the pinch and looking for relief.

In California, enrollment numbers aren’t meeting the targets needed to make the exchange self-sustaining. Even a fee increase on each insurance plan sold through the exchange is not expected to raise enough revenue to make the agency financially solvent. The failure of a state-run exchange to pay for itself means running afoul of ObamaCare, which originally required such exchanges to be self-funded by 2015. The Obama administration delayed enforcement of that requirement until 2016, but many states don’t see the math changing in a year’s time, and aren’t willing to impose a new tax on locals to make up the difference. 

Among the most popular alternatives being talked up is the possibility of combining neighboring states into regional exchanges. This is an option allowed in one of ObamaCare’s many obscure sections. Potential cost savings include shared call centers, web design and IT support. So far, however, no group of states has taken any concrete steps toward it because of problems with competing insurance regulation schemes.

Instead, the default option for many state exchanges drowning in red ink is to pull the plug and migrate customers to Healthcare.gov, the federal exchange. Oregon and Nevada have already moved in that direction, and Hawaii and Vermont are not too far behind. By the end of this year, there may be fewer than 10 states struggling to maintain their own health insurance exchange.

All of which makes the U.S. Supreme Court’s pending decision on eligibility for ObamaCare subsidies that much more intriguing. As written in the law, federal subsidies are only available to customers buying health insurance on state-run exchanges, part of the cost-shifting scheme mentioned above. But just as state officials have discovered that running an exchange is financially unsustainable without federal money, so too are ObamaCare-compliant insurance plans. Without an ObamaCare subsidy, ObamaCare health insurance is unaffordable.

But the issue the Supreme Court is deciding isn’t affordability, it is eligibility. A common sense reading of the text clearly shows that ObamaCare’s drafters assumed states would accept the financial burden of running exchanges so that their citizens could get access to federal subsidies. What no one seemed to consider was that state leaders would be unwilling to tax their own citizens so that President Barack Obama and his friends in Congress could get credit for making mandatory, expensive health insurance (technically) affordable. 

Yet here we are. Many states were happy to burn through billions of dollars in federal start-up subsidies, but now balk at the suggestion that they put up their own money to realize President Obama’s version of “affordable” health insurance. If the Supreme Court upholds the rule of law by striking down an illegal IRS interpretation that grants subsidies to everyone, the vast majority of Americans using Healthcare.gov will come to the same conclusion.

ObamaCare is a complex mess of cost-shifting schemes designed to make a financially unsustainable program seem affordable. People should know the truth. A correct ruling by the Supreme Court would go a long way toward making that happen.