Insurance exchange would strain Oklahoma's budget

August 3, 2012

State budget directors are well aware of the fiscal dangers posed by Medicaid expansion (“State budget directors see Medicaid expansion costs, but not savings”). But expanding medical welfare isn’t the only aspect of the president’s health-overhaul law that would put a strain on Oklahoma’s state budget. Health insurance exchanges would too. As Sally Pipes recently pointed out in Investor’s Business Daily (‘States Are Rebelling Against The High Costs Of Obamacare’):

Since the Supreme Court upheld most of ObamaCare, six governors have said they will not abide by it. Four others have said that they will not set up the health insurance exchanges the law envisions, and 15 others are considering other options or waiting for the outcome of November's election.

That's half the states. More may follow—particularly as they discover how much they'll have to spend to comply with Obamacare.

One of the law's more burdensome provisions is its requirement that states establish health insurance exchanges, where consumers and small businesses can shop for insurance policies. States are to receive grants from the feds in order to offset the cost of setting up the exchanges.

If a state declines to follow federal dictates, then the feds will step in, construct an exchange, and run it.

That, of course, is only if everything goes according to Obamacare's plans.

And that outcome's far from assured.

First, the grants only fund start-up costs. The federal tap will be turned off in as little as a year—and at most, in five years. In other words, ObamaCare saddles the states with an unfunded mandate that will cost millions of dollars to run. States won't be responsible just for operating the exchanges.

They'll also have to police them in accordance with Obamacare's other mandates. States will have to ensure that insurers offer a sufficient number of "qualified health plans" that meet federally dictated coverage standards.

They must provide for "essential community providers" to serve low-income people shopping in the exchanges. And states must establish and oversee a health plan "quality improvement" strategy imposed on them by the federal government.

Congressional Budget Office Director Douglas Elmendorf told then-House Speaker Nancy Pelosi in March 2010 that the costs of the exchanges and other mandates in the health care law "would greatly exceed" the $70-million annual threshold established in the Unfunded Mandates Reform Act of 1995 in each of the first five years the mandates are in effect.

In other words, state and local governments are looking at [more than] $70 million in new costs thanks to the exchanges and Obamacare's other mandates each and every year.

It’s small wonder that, as The Wall Street Journal put it (“Exchange for the Worst”), “Obamacare is already proving to be unworkable in state practice.”