The state health exchanges that are central to the Patient Protection and Affordable Care Act are costing the federal government more than twice its initial budget to complete.

The Obama administration expects to have spent $4.4 billion in fiscal 2012 and 2013 on grants to states that are building new marketplaces to sell subsidized health insurance, according to budget proposals released today for 2014. A year ago, the administration had anticipated spending about $2 billion.

Including grants the administration expects to make in 2014, costs for the state-run exchanges will reach about $5.7 billion. The budget overrun doesn’t include the extra money needed to set up a “Federally Facilitated Exchange” in 34 states that chose not to cooperate with President Barack Obama’s initiative.

 “It’s a lot more complicated than anybody imagined,” says Joseph Antos, a health economist at the nonprofit American Enterprise Institute who advises the Congressional Budget Office. “To be fair to CBO, this is one of the many areas where they didn’t know how big the bread box was, much less what was in it.”

When Congress passed PPACA in 2010, lawmakers envisioned most states would build the exchanges, and they were told by their own budget accountants that the startup costs would be about $2 billion.

Initially billed as a Travelocity or Expedia for health insurance, the exchanges will operate more like tax-preparation software, asking customers a series of questions about their income, work and families and drawing on multiple government databases to determine eligibility for insurance programs and subsidies. The exchanges are supposed to open in October to begin enrolling people in plans that start Jan. 1.

Big enterprise

Brian Cook, a spokesman for the U.S. Centers for Medicare and Medicaid Services, which is managing exchange construction, didn’t immediately comment.

Sixteen states and the District of Columbia are building their own exchanges using federal grants. The Obama administration is building all or part of the exchanges in 34 other states whose governors or legislatures didn’t want to do the work.

The scope of the spending shouldn’t be a surprise, says Gary Claxton, a vice president at the nonprofit Kaiser Family Foundation, which has tracked development of the exchanges.

 “It’s a major new health program that’s going to provide not just insurance but a regulated market with new types of products and financial assistance, with premium tax credits and cost-sharing subsidies to millions of people,” he says. “Particularly at the startup, that’s a big enterprise.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access