Most, if Not All, States Will Be on the Federal Exchange by 2020

Correction: June 20, 2014

An earlier version of this article misidentified the state of Washington as preparing to enter into the Federal Exchange. Though the state of Washington is having trouble with its enrollment website, Washington Health Benefit officials have clarified that Washington state has no intention of becoming part of the federal marketplace.

As ObamaCare launched last fall you’ll recall 16 states started their own exchanges, 7 were State/Federal partnerships (effectively operated by the Federal exchange for most functions), and 27 states were supported purely by the Federal Exchange.

Ironically, most of these were in red states where Congressional delegations and governors and state legislatures wailed about a “Federal takeover of healthcare,” and that’s exactly what they got by their inaction. We knew at least 3 would have no choice but to drop out after the first year and go Federal. As preparations continue for ObamaCare’s second enrollment period in October, it’s now clear at least half of the state-based exchanges are going Federal in 2015.

I’ll say it: I think most states, if not all, will be on the Federal exchange by the end of the decade.  The only holdouts will be states where the politics necessitate it, like Kentucky’s KYNect, home of Senate Minority Leader Mitch McConnell (R-KY). KYNect has been wildly successful, signing up over 420,000 Kentuckians, many gaining health insurance for the first time in their lives, and it’s giving McConnell fits in his midterm reelection bid.

The technology to run an exchange at state and Federal is duplicative, basically the same black box web-commerce architecture from over a decade ago, made wildly complex by the many state and Federal agencies involved in eligibility and enrollment. In the last several months we’ve seen multiple states crash and burn trying to stand it up, just as healthcare.gov did last fall.  Oregon is preparing to sue Oracle for its botched system.  Maryland’s goat rodeo of an exchange launch has become a wedge issue in the governor’s race. Now, Politico reports that Washington state is dealing with “back end” problems on its enrollment website, and the ObamaCare launch actually went relatively well there.

Then there’s the issue of cost. The Affordable Care Act requires state-based exchanges to be self-sufficient in 2015. Those that went their own way had the buildout — or meltdown — largely paid for with Federal funds in 2011-2012. It was a vendor’s Full Employment Act, with extremely mixed results. Next year’s a whole different matter. State-based exchanges costs hundreds of millions of dollars annually to operate, and that won’t last long in cash-strapped legislatures. The only ones left standing at the end of the decade may be Kentucky — and only as a middle finger to McConnell, as long as he may be in office — and California. Because it’s California.

So for those health plans operating in states already under the Federal exchange: steady as she goes and stay current as pregame festivities begin for the second open enrollment period. If you’re operating in a state doing it’s own thing that’s not KY or CA, you may want to consider re-speccing your systems for Federal functionality. It’s only a matter of time in my opinion.

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