State-Run Insurance Exchanges in Federal Healthcare Reform: A Case Study in Dysfunctional Federalism

CONTENTS I. INTRODUCTION 549 II. HEALTH INSURANCE EXCHANGES IN THEORY AND PRACTICE 551 A. Health Insurance Exchanges: Pre-ACA Attempts 551 B. The Structure of the ACA Exchanges 553 III. FUNCTIONAL FEDERALISM CONSIDERATIONS AND STATE-BASED EXCHANGES 556 A. The Case for State-Based Exchanges 556 1. Functional Factors in Favor of State Regulation 557 2. The ACA Exchanges Fail to Take Advantage of the Benefits of State Government 558 B. Exchanges Are More Appropriately Organized at the Federal Level 559 1. Functional Factors in Favor of National Regulation 559 2. Insurance Exchanges Should Be Run by the Federal Government 560 IV. INSURANCE EXCHANGES: ANTI-COMMANDEERING LITE? 562 A. The Anti-Commandeering Doctrine and the ACA Exchanges ....... 563 B. Medicaid Expansion as Anti-Commandeering: A Blueprint for Challenges to the Insurance Exchanges? 565 C. Practical Problems with Implementation and Coordination 568 V. CONCLUSION 569 I. INTRODUCTION On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (ACA) into law,1 resulting in the most sweeping reform of the healthcare marketplace and one of the largest expansions in access to healthcare in American history. 2 A key component to both restructuring the healthcare marketplace and improving access are the health insurance exchanges contained in the ACA. Today, individual and small group purchasers have difficulty finding affordable health insurance in the marketplace because they lack the tools to gather information about plans and because they lack the bargaining power to negotiate for affordable rates the way large purchasers can.3 In conjunction with the individual mandate,4 the health insurance exchanges aim to solve inefficiencies in the current marketplace by creating a centralized venue to connect insurers with individual and small business purchasers. Thus, it both creates a place for insurers to readily find customers, who are now guaranteed to be there because of the individual mandate, and provides a place for customers to shop for insurance. Rather than creating a national health exchange, and, in turn, a unified national insurance market, the ACA adopts a familiar federalist model that requires state-run exchanges to implement federal policy. 5 This Note argues that the federalist structure of the insurance exchanges contained in the ACA is inefficient and ultimately self-defeating, both from a functional federalism perspective and because of the significant constitutional and political challenges it invites. Traditionally, healthcare, health insurance, and public health regulations were the exclusive province of the states.6 This dynamic has changed over the course of the past century, with the federal government taking an increasingly larger role in regulating and financing healthcare, starting with the New Deal and Great Society movements and continuing on through the modern regulatory state.7 Even with this continued encroachment into the healthcare regulatory system, the federal government has gone to great lengths to continue to share power with the states. As it stands today, most of the significant federal healthcare programs, such as Medicaid8 and State Children's Health Insurance Program (SCHIP),9 are governed jointly at the national and state levels. …