Patrick IshmaelChristie Herrera

Earlier this year, the Missouri Senate approved a measure blocking Missouri Gov. Jay Nixon’s ability to create a health insurance exchange — a key component of President Barack Obama’s health law — unless the legislature or voters approve it first.

Supporters of the exchange claim they will lose their chance to create a Missouri-centric mechanism to provide affordable health coverage to the uninsured. But Missouri lost that chance nearly two years ago, when the federal health bill was signed into law.

The theory of a state-run exchange, designed to navigate and subsidize the purchase of health insurance, is simply that — a theory. Rules that officials in Washington issued to implement the law say that every detail of Missouri’s exchange must have the approval of federal bureaucrats.

And because federal grants and subsidies will flow through state-based exchanges, Washington will always be able to control Missouri’s exchange through ongoing regulation. This “my house, my rules” scenario underscores the new parent-child dynamic occurring between Washington, D.C., and the states, and the Missouri Senate was right to reject the governor’s ability to implement an exchange.

But if Missouri does not set up its own exchange, won’t the federal government do it for the state? The law says yes, but in reality, it is unclear. The Department of Health and Human Services (HHS) is still grappling with recent findings that the law does not technically provide any money to set up a federal exchange, nor does it offer subsidies to people buying insurance in the federal exchange.

Even if the glitches get worked out, it is doubtful that a federal exchange will be up and running by the 2014 deadline. To date, HHS has only doled out $150 million in contracts to build a federal exchange — a system tasked with coordinating the eligibility, subsidies, premiums, and benefits for tens of millions of people who will be forced to purchase health insurance thanks to the individual mandate. That is a tall order.

Meanwhile, we do not know just how much a state-based exchange will actually cost Missouri. The federal government is awarding grants to set up state exchanges, but that money runs out in 2014. Oregon has imposed new taxes on health insurance premiums to fund its exchange once the federal money dries up, and other states are considering similar measures. Indeed, research from the Mercatus Center suggests that every dollar of temporary federal grants leads to 40 cents of state and local tax increases.

Besides, federal money is not free — everyone pays federal, state, and local taxes, and increased federal spending on exchanges means more out of taxpayers’ pockets. In December, the New Hampshire House announced that it will return $333,000 in federal exchange funds to “pay down our national debt, which is a far better use of these funds than building healthcare bureaucracies here.”

Missouri has time to figure out how, or if, it wants to set up a health insurance exchange. Nationally, only 17 states have acted to establish exchanges — and many of those states have made only nominal progress in setting them up. In response, the federal government has delayed implementation timelines, extended grant deadlines, and even offered a “hybrid” model through which states and the federal government can share in exchange governance.

A lot can happen in the next year, with the upcoming Supreme Court decision on the federal health law, the 2012 elections, and the still-unfinished exchange regulations from HHS. Kudos to the Missouri Senate for blocking Gov. Nixon’s rush to act.

Patrick Ishmael is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.
Christie Herrera is director of the Health and Human Services Task Force at the American Legislative Exchange Council, a nonpartisan association of conservative state lawmakers.

About the Author

Patrick Ishmael
Director of Government Accountability

Patrick Ishmael is the director of government accountability at the Show-Me Institute.

Christie Herrera