A Way Forward: Establishing Financially Self-Sustaining Health-Insurance Exchanges Under the Patient Protection and Affordable Care Act

• Author: Jessica D. H. Allen
• Position: J.D. Candidate, The University of Iowa College of Law, 2013
• Pages: 773-808

773

A Way Forward: Establishing Financially

Self-Sustaining Health-Insurance

Exchanges Under the Patient Protection

and Affordable Care Act

Jessica D.H. Allen

ABSTRACT: When Congress passed the Patient Protection and Affordable

Care Act in 2010, it created a slew of new issues in the field of health care.

One such issue is how the states should structure the health insurance

exchanges mandated by the new law. As funding is an important

consideration in this decision, examining the approaches taken by the first

eleven jurisdictions to act on the requirement may inform the decisions of

other states. This Note examines the legislation passed by these “vanguard

states” in response to the exchange mandate. In doing so, it denotes the

array of funding options afforded to health insurance exchanges in the

“vanguard states” and organizes them according to the governance models

chosen by each state. The conclusion analyzes the rough trends apparent

and recommends that states should choose the state-agency model in order to

ensure the exchanges comply with the financial sustainability requirements

of the Patient Protection and Affordable Care Act.

I. INTRODUCTION ...................................................................................... 775

II. PPACA’S CALL TO ENACT STATE HEALTHCARE EXCHANGES ............... 777

A. THE ROLE OF PPACA-MANDATED HEALTHCARE EXCHANGES ............ 779

B. OVERVIEW OF STATE DISCRETION IN CONSTRUCTING AND

FINANCING EXCHANGES .................................................................... 780

1. Governance Structures .......................................................... 781

2. Exchange Financing .............................................................. 785

C. PRE-PPACA EXCHANGES .................................................................. 787

 J.D. Candidate, The University of Iowa College of Law, 2013; B.A., The University of

Iowa, 2005. I would like to thank the student writers and editors of Volumes 97 and 98 of the

Iowa Law Review for their work on this Note.

774 IOWA LAW REVIEW [Vol. 98:773

III. DIFFERENT APPROACHES TO ESTABLISHING EXCHANGES AMONG

THE STATES ............................................................................................ 788

A. APPROACHES TO FUNDING ................................................................ 790

1. Types of Funding Used To Establish the Exchanges ........... 790

i. Funding Grants ................................................................. 790

ii. Appropriations ................................................................... 792

iii. Loans and Bonds ............................................................... 792

2. Types of Funding Used To Operate the Exchanges ............ 792

i. Fees as Envisioned by the National Association of

Insurance Commissioners .................................................... 793

ii. Fees as Enacted by the States ................................................ 794

iii. State Appropriations ........................................................... 796

iv. Taxes ................................................................................. 798

v. Loans and Bonds ............................................................... 798

vi. Unused Money: Savings and Investments ............................ 799

B. APPROACHES TO EXCHANGE GOVERNANCE STRUCTURES AND HOW

THEY RELATE TO FUNDING ............................................................... 799

1. State Agencies ......................................................................... 800

2. Private Nonprofit Corporations ............................................ 801

3. Quasi-Governmental Entities ................................................ 802

IV. THE WAY FORWARD: STATE AGENCIES ................................................... 805

V. CONCLUSION ......................................................................................... 808

2013] SELF-SUSTAINING HEALTH-INSURANCE EXCHANGES 775

I. INTRODUCTION

Amid both fanfare and controversy, President Obama signed a long-

awaited healthcare-reform bill into law in March of 2010, the Patient

Protection and Affordable Care Act (“PPACA” or “Act”).1 The Act stopped

short of creating a comprehensive national healthcare system; instead

seeking to provide national coverage through a patchwork of government,

employer, and individual programs.2 A great deal of the controversy

concerning this wide-ranging act centered on the individual mandate

requiring American citizens to purchase health insurance.3 Several states

banded together to challenge the constitutionality of that provision of

PPACA.4 The Supreme Court settled the argument, finding the individual

mandate constitutional under the taxing power and, in doing so, left any

provisions affected by the mandate untouched.5

Lost in the uproar surrounding the individual mandate are more

practical concerns. The law includes a bevy of provisions, from discrete

provisions, such as one expanding prohibitions on physician-owned

hospitals, to wide-ranging regulations of insurance coverage.6 One essential

portion of the law and the focus of this Note is the call for state-run health-

insurance exchanges (“exchanges”), which are, according to some

1. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1101, 124 Stat.

119, 141–43 (2010) (codified as amended in 42 U.S.C. § 18001 (Supp. IV 2011)); Obama Signs

Historic Health Care Legislation, NPR (Mar. 23, 2010), http://www.npr.org/templates/story/

story.php?storyId=125058400 (“The legislation, estimated to cost $938 billion over the first

decade, extends coverage to 32 million uninsured Americans and bans insurance company

practices such as denying coverage to people with pre-existing medical conditions.”).

2. TOM DASCHLE, GETTING IT DONE 167–72 (2010).

3. Id. at 293–94. See generally WASH. POST, LANDMARK: THE INSIDE STORY OF AMERICA’S

NEW HEALTH-CARE LAW AND WHAT IT MEANS FOR US ALL 85–92 (2010) (discussing the

individual mandate). For scholarly responses to the individual mandate debate, compare Randy

E. Barnett, Commandeering the People: Why the Individual Health Insurance Mandate Is

Unconstitutional, 5 N.Y.U. J.L. & LIBERTY 581 (2010), with David Orentlicher, Response,

Constitutional Challenges to the Health Care Mandate: Based in Politics, Not Law , 160 U. PA. L. REV.

PENNUMBRA 19 (2011).

4. See Wilson Huhn, Constitutionality of the Patient Protection and Affordable Care Act Under

the Commerce Clause and the Necessary and Proper Clause, 32 J. LEGAL MED. 139, 142 n.17 (2011)

(citing N.J. Physicians, Inc. v. Obama, 757 F. Supp. 2d 502 (D.N.J. 2010); Shreeve v. Obama,

Civil Case No. 1:10-CV-71, 2010 WL 4628177 (E.D. Tenn. Nov. 4, 2010); Baldwin v. Sebelius,

No. 10CV1033 DMS (WMC), 2010 WL 3418436 (S.D. Cal. Aug. 27, 2010); Taitz v. Obama, 707

F. Supp. 2d 1 (D.D.C. 2010)).

5. Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2594–600 (2012).

6. 42 U.S.C. § 1395nn (2006 & Supp. IV 2011); see, e.g., id. § 300gg (“Fair health

insurance premiums”); id. § 18001 (“Immediate access to insurance for uninsured individuals

with a preexisting condition”); Patient Protection and Affordable Care Act, Pub. L. No. 111-

148, § 1323, 124 Stat. 119, 192–99 (“Community health insurance option”) (repealed Mar. 23,

2010).