The Supreme Court’s ruling in King v. Burwell that subsides on the federally-facilitated marketplace can continue may present an opportunity for struggling state-based marketplaces to switch to, as other challenges remain for exchanges nationwide.

We now move on to the “hard work of trying to make these markets function as effectively as possible,” says Carolyn Pearson, senior vice president at consultancy Avalere Health in Washington. “The ruling gives general stability. … But there [are] lots of ongoing challenges that both the state and federal exchanges will continue to grapple with in the coming years.”

Leading up to the ruling with all the reports of what might happen, “we were all entertaining various doomsday scenarios and estimating premium increases, death spirals and other cataclysmic events,” says Katherine Hempstead, a director at the Robert Wood Johnson Foundation in Princeton, N.J. “I think we all learned some important things. We realized first of all that the individual market is pretty big — it involves millions of people and billions of dollars — a population far larger than the actual holders of tax credits was vulnerable to the impact of a decision for the plaintiff.”

“An individual market, based on guaranteed issue and fed by tax credits, may already be ‘too big to fail’ — and it will probably become bigger still in years to come,” she adds.

Switching to

Leading up to the Supreme Court’s decision, states using the federal marketplace were considering becoming state-based marketplaces in order to maintain subsidies, should they have been ruled illegal, says Michael Lujan, co-founder and chief strategy officer at Limelight Health in San Francisco. Now, they are considering joining the federal marketplace, as some state-based exchanges are facing financial difficulties.

Also see: From ‘common sense’ to ‘status quo,’ the industry reacts to King v. Burwell ruling

Those marketplaces that have reported difficulties with their finances include Hawaii, Oregon and Vermont. All state-based marketplaces are required by the ACA to become self-sustaining by 2016. As a result of this ruling, “I would not be surprised if a number of state-based marketplaces convert over to using,” Pearson says. It would be relatively easy at this point to make the switch. Although the deadline for states to switch has passed, the Obama administration could easily slot another state onto, she explains.

If functions well and is cost-efficient, MD Sam Smith, president of brokerage Genesis Financial in Encino, Calif., sees no problem with states making the jump. Instead, Smith worries about a “further erosion of the private health care system to the federal government.”

Also see: SCOTUS decision returns adviser focus to ACA compliance

Exchange officials deferred comment to state offices, which would be making the decision of switching to Lisa Morawski, a spokesperson for Oregon’s Department of Consumer and Business Services, which is taking over the Cover Oregon exchange on July 1, says that while Oregon uses for enrollment, the state performs all other marketplace responsibilities, including plan management responsibilities, in-person assisters/navigators program, consumer outreach and education, operations and the Small Business Health Options Program marketplace.

“There are no plans to change this structure,” she said in an e-mail. Representatives from Hawaii and Vermont did not respond to a media inquiry as of press time.

Enrollment challenge

Among other challenges that remain on exchanges are enrollment numbers, which were lower than initially projected for this year, Avalere’s Pearson says. For the market to be viable, enrollment needs to pick up, she says.

In California — often cited as one of the most successful state-based marketplaces — approximately 200,000 residents went into MediCal, which hurts Covered California’s revenue, Lujan, president-elect of the California Association of Health Underwriters, says. “That is money not realized for the exchanges that was budgeted,” he explains. “They staffed for that, their entire financial model is based on that.”

Also see: SCOTUS upholds subsidies, industry shifts attention to other ACA fixes

The exchange retained 65% of its membership, “which creates a spiral that says your financial model no longer works,” Lujan adds. “Even in a successful story like California, the enrollment numbers are in a tough bind.”

Lujan says he wanted to tell a story that was more optimistic that shows the system is working and enrollment targets were hit and an exchange on track to sustainability, but he couldn’t find that story.


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