Federal Funding and State Insurance Exchanges

Conservatives have long argued that “first dollar” insurance coverage helps raise the cost of health care, as people tend to overconsume services they perceive as free. Implementation of state insurance exchanges appears to confirm that hypothesis: Several states that used “free” federal dollars to build complicated exchanges may end up scrapping them.

Officials in Maryland and Massachusetts are trying to determine whether their tech-troubled exchanges can be salvaged in time for the next open season of the Affordable Care Act. Oregon officials voted last month to scrap the state’s problematic exchange and switch to the federal system. In general, states building less complicated exchanges suffered fewer technical glitches. Oregon Gov. John Kitzhaber said last year that “one could argue in retrospect we bit off more than other states.”

The Kaiser Family Foundation has tracked the nearly $4.7 billion in federal spending on health-care exchanges in 14 states and the District of Columbia. Perhaps more significant than the sums at issue is the fact that all of the states’ exchange funding came from federal coffers.

Would Massachusetts officials still have wanted to create “the absolute Rolls-Royce of any health exchange” had they been required to pay its costs—which could approach nearly $300 million? Would the Bay State have chosen to redesign the state portal while also exploring a backup move to the federal exchange had federal dollars not been funding its Plan B and Plan C?

In Oregon, would officials have tried to re-create the “entire” computer infrastructure of the state Department of Human Services had such efforts come out of the state social services department’s budget?

It is, of course, impossible to answer these questions definitively. But state officials almost certainly would not have been stingier with federal dollars than with their own funds. And constraining their ambitions might have produced more functional exchanges.

This post was originally published at the Wall Street Journal Think Tank blog.