One of the linchpins of the Affordable Care Act (ACA) was to have health care insurance available for everyone. States were to form health care exchanges whereby people could shop for a suitable health care policy that fit their needs and still meet the requirements of the Act. If a state were to opt out of making an exchange, the Federal government would have a fall back exchange which could be used instead. The Federal government could not force the states to set up exchanges because that would violate rules of Federalism and the separation of powers.
In an effort to have the state’s set up the exchanges, the Act, in its original form, would only allow premium subsidies for those people who bought their health insurance on a state exchange. Surprisingly, only 17 states set up an exchange and 7 states developed a partnership exchange with the federal government; the other states opted to use the Federal exchange. The Federal government preferred the states to set up their own exchanges because the requirements of health insurance were under the powers relegated to the states. Each state would be in the best position to decide which policies would meet that particular state’s requirements.
Obamacare became a heated political issue and it was finally passed by Congress in 2010 with no votes from the republican side. President Obama signed it into law.
Kentucky was one of the states that set up its own exchange. After the passage of Obamacare, Matt Bevin, the republican candidate for governor of Kentucky was able to win relying on a platform to do away with the ACA.
It is no surprise that Governor Bevin decided to close the Kentucky state run health care exchange “Kynect.” This exchange had originally been formed under the leadership of Steve Beshear, a democratic governor.
Governor Bevin felt that Kynect was wasteful spending since the Federal exchange could be used with relatively low costs to the state. With the recent Supreme Court decision of King v. Burwell, there would really be no penalty to Kentuckians who would still be eligible for premium support from the federal government. After all, Burwell held that state and federal health insurance exchanges were the same as far as health insurance premium support was concerned.
With the closure of this exchange, about 100,000 Kentuckians with private health insurance will now need to reapply for insurance through the Federal insurance exchange. This application can be long and difficult. There are more plans to choose from and the premiums vary considerably. Some people may opt out of getting health insurance altogether. They may have to pay a penalty (a tax) by being without insurance, but this tax will likely be less than the premium costs, anyway. Also, insurance can be bought at any time (guaranteed issue) and there is no penalty for waiting until you get sick (community rating).
It is likely that many of the 100,000 will hold off on redoing their health insurance until they need it. If relatively healthy people opt out of buying health insurance, this will put pressure on the insurance companies who rely on healthy patients to pay premiums and then don’t use the policy since they are in good shape. If insurance companies start to lose money, they may opt out of participating in the health insurance business of that state.
Here is some historical perspective. Kentucky was one of the first states to implement guaranteed issue and community rating in the 1990’s. Premiums kept rising as the insurance companies tried to stay solvent. Between 1994 and 1997, forty-five insurance companies left Kentucky because of rising losses.
Several health insurers have been struggling under the Affordable Care Act. The nation’s largest health insurer, UnitedHealth Group warned that they may have to pull out of the exchanges by the end of 2016. Tenet Healthcare, HCA Holding, Aetna, and Anthem are also struggling.
There are several issues that will need to be addressed if Kentucky does close the state exchange. The state will first need to meet the obligations of the exchange through the end of 2016. Insurance companies who have participated thru the state exchange will then need to transition to the Federal exchange. Will these companies be willing to meet the requirements of the Federal exchange if they are significantly different from the requirements of the state? If the insurers are losing money, they are unlikely to stay in the business.
Is this closure of the state exchange just political posturing on the part of the republican governor who is trying to fulfill political promises? After all, there will be significant costs to the state and potentially to the citizens caught up in the transition.
The state will have to pay a 3% fee on insurance costs for the residents who use the Federal exchange. The state will also be at risk of losing $58 million of the federal grants it received for setting up the original state exchange.
Kentucky will still have to manage Medicaid and the Children’s Health Insurance Program (CHIP). These programs had originally been tied in to the state private insurance exchange; this uncoupling will likely result in some administrative costs to the state. Will the Feds cut back on the support of Medicaid and CHIP that they presently send to the state as a means to penalize the state for abandoning the state exchange?
Bevin’s approach to Medicaid will be different with the new system. Bevin says the state will still cover those whose income is up to 138% of the poverty level but there will likely be a decrease in benefits for those at or below the poverty line who do not pay Medicaid premiums. Bevin wants to model the Kentucky program after the Indiana program where people who do pay Medicaid premiums will get a better benefits package. It is uncertain as to how this will play out with the electorate.
There are some unknown unknowns that Bevin may have to deal with. Since King v. Burwell showed that the Internal Revenue Service (IRS) controls the premium support available to the citizens, can the IRS financially punish the citizens of Kentucky to such a degree that Mr. Bevin will be forced to abandon his plans? I would not be surprised if pressure is brought to bear and Mr. Bevin may be forced to back off. I don’t think any significant changes to Obamacare will occur until there is a new President and I don’t think the present executive will sit idly by while there is an attempt to close the Kentucky exchange.
 Commonly referred to as “Obamacare:.
 Conrad F. Meier, “Destroying Insurance Markets: How Guaranteed Issue and Community Rating Destroyed the Individual Health Insurance Market in Eight States,” The Council for Affordable Health Insurance and the Heartland Institute, 2005; http://www.cahi.org/cahi_contents/resources/pdf/
 Nathan Bomey and Jayne O’Donnell, USA Today, November 20, 2015.
 King v. Burwell, 576 U.S._(2015).