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Health Ruling Has Some States Eyeing Federal Marketplace

By Marissa Evans, CQ Staff

July 2, 2015 -- The 16 states that, along with the District of Columbia, already operate their own health insurance marketplaces under the Affordable Care Act didn't appear to have much at stake in the Supreme Court ruling that allows qualified residents of states without marketplaces to continue receiving federal health insurance subsidies.

But the June 25 ruling in King v. Burwell provided a potentially attractive benefit for the marketplace-running states: the option to scrap high-cost and hard-to-run marketplaces in favor of one supported or run entirely by the federal government.

The ruling upheld an important part of the health law—saving 6.4 million people from losing subsidies that help them pay for health insurance on the federal marketplace.

The case challenged whether the law allowed residents of the 34 states that didn't set up marketplaces to receive the subsidies.

At least three states with their own marketplaces—Minnesota, Vermont, and Hawaii—have taken steps to switch to the federal system after finding their own marketplaces were too much of a financial, technical, or administrative burden. The court's ruling means they can make that move without disqualifying their residents for subsidies.

"If you have an IT system that's not really working then there's an advantage to shifting to, which for the most part is working, but you know that comes with challenges," says Jennifer Tolbert, director of state health policy at the Kaiser Family Foundation.

The federal marketplace went through a glitch-filled rollout in 2013, preventing many people from signing up for plans.

Since then, the administration has made improvements, allowing it to handle more traffic and giving people a chance to browse plans.

Though the federal government is offering up the back-end to states for free, the switch still presents challenges for consumers.

In states that make the switch, Tolbert says, residents who bought insurance through the state-based exchange would have to reapply for coverage through and wouldn't be able to renew their current coverage.

And some of the existing state exchanges connected their data to federal Medicaid eligibility systems to help residents sign up for that insurance program for the low-income and disabled population. That system integration—and millions of dollars spent to build it—would be lost if those states switched over to, Tolbert says.

Minnesota Democratic Gov. Mark Dayton persuaded his state legislature this past session to establish a task force to examine the financial viability of the state's exchange, MNsure. The site was hobbled by glitches during the first open enrollment period in 2013. Despite some improvements since then, it has had trouble enrolling Medicaid beneficiaries.

Vermont Health Connect has been grappling with a host of technology problems. The most troubling has been a backlog of 8,000 Vermonters who still can't make simple changes to their information.

Vermont Democratic Gov. Peter Shumlin set a series of strict deadlines for the state's new vendor, Optum, ahead of the next open enrollment on Nov. 1. But lawmakers are already considering options in case the site still isn't working.

Democratic Vermont Rep. William J. Lippert, chairman of the House Committee on Health Care, says that he'll be leading committee meetings over the summer and fall to assess potential alternatives for Vermont Health Connect. He says the committee is going to look at the site's financial viability and ongoing costs.

"We want to make sure we have something in place that is actually affordable and we've already spent a great deal of money. But the ongoing costs are a concern," Lippert says.

Even if Vermont were to switch over to, the move wouldn't be simple, according to Lippert. Vermont residents receive state subsidies on top of federal subsidies to help them buy insurance. Lippert says the state would have to determine how to continue the state portion for those customers after switching to the federal exchange.

Meanwhile, officials in Hawaii plan to use federal help to run the state's Health Connector exchange. After spending $130 million and encountering technology issues during the first open enrollment period in 2013, Hawaii will rely on the's back-end this fall to sign up residents for insurance. The state will be following New Mexico, Nevada and Oregon, which already use the federal system.

For now, states can use the federal back-end without charge, but the Centers for Medicare and Medicaid Services has said these states will have to start paying in 2017.

Jeff Kissel, Hawaii Health Connector's executive director, says that with only about 40,000 Hawaii residents signed up for health insurance through the exchange, the ongoing and future costs were too high to justify maintaining an independent site.

"You get to the point where the burden of maintaining the infrastructure is so substantial that the opportunity to let the federal government help us was a very sensible choice," Kissel says.

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