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The case for a state-based marketplace

Former Speaker of the House Tip O’Neill made famous the phrase “all politics is local,” meaning electoral success is related directly to a politician’s understanding of and ability to address the local issues that matter most to constituents. The Commonwealth Fund applied this notion to health care in conclusions of a 2017 study of state year-over-year improvements in their rankings on the organization’s Scorecard on Local Health System Performance. This concluded that local knowledge of health care challenges and collaboration among local organizations to find solutions were major contributors to communities’ improvement on scorecard rankings.

One state-level decision that can boost responsiveness to local needs is whether to establish a state-based marketplace (SBM) for health insurance. Health insurance marketplaces are required in every state under the Affordable Care Act (ACA). Under the ACA, states were given a choice about whether to establish an SBM and receive some federal funding to do so or rely on the federally facilitated marketplace (FFM) to serve their residents. Marketplaces are designed to do two basic things: (1) enroll individuals and families who do not have access to Medicaid, Medicare, or employer-sponsored health insurance coverage in private coverage and (2) connect eligible individuals with financial assistance (premium tax credits and cost-sharing reductions) to reduce their cost of coverage. To date, 19 states have established SBMs and others continue to entertain the possibility of establishing one.

Why would states want to establish and operate a new agency of government to administer coverage for people who are receiving federal tax credits for their health insurance coverage? Surely this could create redundant and/or uncoordinated functions between states and the federal government and place an unwanted burden on capacity-strapped state governments. However, states that have established SBMs have not found this to be the case. Instead, in evaluating the FFM versus SBM decision, and in operating SBMs, states have found that SBMs offer distinct advantages over the FFM. These include:

  • Lower Costs: States have historically demonstrated that they can operate SBMs at a lower overall cost than they would pay in fees through the FFM which has led, in part, to the recent reductions to the user fee. States also directly benefit through their ability to retain marketplace revenue and spend it locally. Lastly, SBMs can claim federal financial participation for functions they perform supporting and facilitating Medicaid enrollment.
  • Better Service: States have an almost 60-year history of enrolling low-income individuals and families enroll in and stay enrolled in Medicaid. Many of these individuals cycle in and out of Medicaid eligibility due to changes in income. States can coordinate between SBMs and Medicaid to reduce gaps in coverage. They also can simplify eligibility and enrollment through SBMs that deliver a better customer experience through knowledge of their markets and residents and on the ground enrollment assistance and initiatives.
  • More Policy Influence: SBMs can be launchpads for access and affordability innovations not possible with the FFM. State innovations to date include public option plans, state-funded subsidies such as premium and cost-sharing wraparound support, basic health plans, undocumented immigrant coverage programs, and collaborative enrollment initiatives with Medicaid agencies, unemployment programs, and tax departments.

In addition to states, managed care organizations (MCOs), particularly local and regional MCOs, can also reap the benefits of an SBM:

  • Local Governance: With governance for an SBM taking place at the state level (versus the federal level), MCOs have the opportunity for more thorough engagement with state officials around operational and policy decisions and issues.
  • Aligned Market Expectations: MCOs participating in both the marketplace and Medicaid will benefit from a higher probability of aligned expectations and priorities across both markets with those expectations and priorities being uniformly set at the state level with an SBM.
  • Local Market Sensitivity: MCOs that operate and are rooted locally can count on market-specific dynamics being better reflected in decision-making with an SBM.

Establishing a SBM is not an easy or straightforward decision, but state policymakers and MCOs should consider the benefits that have accrued to other states and the role that SBMs can serve in addressing local health priorities.

If you have questions about how HMA can support your state or MCO related to SBMs, please contact Managing Director Zach Sherman, Principal Lauren Ohata or Principal Anya Wallack.

Meet the HMA blog contributors

Zach Sherman

Zach Sherman

Managing Director
Boston, MA
Lauren Ohata

Lauren Ohata

Los Angeles, CA
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Anya Wallack

Boston, MA