More states exit to run their own insurance marketplaces

A handful of states are contemplating leaving the federal healthcare marketplace in favor of their own state-based marketplace. Chasing possible cost savings, a better consumer experience and more autonomy, at least five states are considering or already making the switch away from

There are already 11 states plus the District of Columbia that operate their own health insurance exchanges, but more are likely to join, according to a report published by the Urban Institute.

Under the Affordable Care Act, states were required to either operate their own marketplace by 2013 or allow the federal government to set up a marketplace. Only 17 states chose to run their own marketplaces by 2017, for about $5 billion in federal marketplace grants. Since then, some states have abandoned their state-based marketplaces for various reasons, such as technological challenges and changes in leadership.

The Urban Institute reviewed authorized legislation, marketplace board meeting materials and executive branch documents, as well as interviews with officials in Nevada, New Jersey, New Mexico, Oregon and Pennsylvania.

Nevada is one state that launched its own marketplace in 2014 before switching to the federal program as a result of IT failures, according to the report. The state is now working on going back to its own marketplace for the 2020 plan year. New Mexico, meanwhile, is moving forward to get its own marketplace by 2022.

Two other states––Pennsylvania and New Jersey––are looking to operate their own marketplaces fully by 2021 with legislation passed in 2019. Maine is similarly opting to transition from the federal marketplace, while Oregon is in the research process and seeking information from vendors.

Cost savings are the primary reason for states to make the switch to their own marketplaces. Nevada projects it will save $19 million through 2023 by switching back to its own marketplace.

“State officials believe they can operate a full SBM ‘better and cheaper’ than CMS by leveraging lower cost technology and a leaner bureaucracy,” the report reads.

States have to pay a user fee of 3.5% of premium to CMS, which operates the federal exchange, to participate. User fees across the five states measured by the Urban Institute totaled $183 million in 2018. While states that operate their own marketplaces don’t have to pay a user fee, they do pay a 3% fee for operating the federal IT platform.

In addition to savings, states want to improve the user experience, as states believe they can beat the federal exchange in several ways. For example, state-based exchanges can collect real-time data to monitor consumer’s interactions with the marketplace that informs states how to improve their websites.

“This would be a significant shift for these states. Currently, states using must rely on the federal government’s willingness to share application and enrollment data,” the report notes.

Finally, states are eager to have more control over policy in switching away from the federal marketplace. States can better manage changes to their own marketplaces, as the federal exchange has been slow to make changes, according to the report.

While some states have made the jump to operate their own health insurance marketplaces, there are risks, including IT challenges and financial risks.