Michigan may be about to jump on the state-based exchange bandwagon


Less than two years ago it looked like my home state of Michigan might be the latest to join the growing list of states which have moved off of the HealthCare.Gov mothership onto their own state-run ACA marketplace (SBM) (aka "exchange"):

The Michigan Legislature is considering joining the 18 other states that have established state-run health insurance marketplaces through HB 6112. Having an exchange run by the state instead of the federal government, supporters of the bill say, will save Michiganders money by leaving the “rigid and inflexible” federal market for a Michigan-tailored market that can be more responsive and potentially lower premiums. The bill is still in the early days of the legislative process, awaiting a vote from the House Health Policy Committee.

...It's particularly noteworthy that not only is a Republican legislator the primary sponsor of the bill (Mark Tisdel), but so are 4 of the other 7 cosponsors (John Roth, Bradley Slagh, Jim Lilly and Gary Howell)...along with three Democratic state Representatives (Jim Ellison, Sara Cambensy and Kevin Hertel).

Well, bipartisan support or not, for one reason or another, HB 6112 of 2022 never made it past the initial stages and that was that...or so it would seem.

Cut to 2024: Michigan Democrats now hold control of the state Senate as well as (barely) the House...and Democratic Representative Kevin Hertel is now Senator Kevin Hertel, who also happens to be the Health Policy Committee Chair...and one of his priorities this session, according to his latest constituent newsletter, is indeed to move Michigan to a state-based ACA exchange:

Legislative Updates

Expanding Access to Health Care Through a State-Based Exchange

Since I was sworn into the Michigan Senate, increasing access to quality healthcare has been a priority of mine. Throughout last year, my team and I spent countless hours meeting with healthcare professionals, insurance providers and patients to craft legislation that would help us achieve this goal through establishing a state-based health exchange here in Michigan. Just last week [newsletter published on March 22nd], this legislative packageSenate Bills 633–638 — hit an important milestone when it passed through the Senate Health Policy Committee.

By shifting our healthcare exchange from the federal platform to a state-based one, we’ll be able tailor the marketplace to better fit local healthcare needs. More specifically, under this plan, the revenue generated by the exchange would stay in our state, rather than be returned to the federal government, allowing us to reduce costs, improve efficiency and boost access to care.

This action is an important move towards our goal of getting more Michiganders covered by insurance, and I look forward to getting these bills through the Legislature and to the Governor’s desk for signature.

There's been a surge of states moving off of the Federally Facilitated Marketplace (FFM) onto their own state-based marketplaces (SBMs) over the past several years; as I wrote way back in June 2015 after the King vs. Burwell Supreme Court decision:

It's even conceivable that a few years from now, after 1) The ACA has become even more firmly entrenched nationally; 2) the software/technology for running a state exchange has become even more streamlined, simplified, faster, easier to use, cheaper, etc etc; and 3) (hopefully) some changed attitudes/changed administration officials (ahem), a few states on HC.gov now may even decide to go ahead and move onto their own "full" exchange/website after all...completely of their own volition.

I realize that sounds pretty crazy now (since there'd be no financial incentive to do so), but anything's possible...and with King out of the way, at least that's a viable option now.

There are both upsides and downsides to a state establishing its own ACA exchange. Pros include:

  • Keeps user fees in state
  • More flexible Open Enrollment Period
  • More flexible Special Enrollment Periods
  • Better Medicaid/CHIP integration (depending on the state's system)
  • Allows supplemental state-based subsidies

Having lower user fees than HC.gov also used to be a significant upside, but CMS has significantly reduced the carrier fees over the past few years so that's really not an issue. To me the biggest plusses here are the first and last bullets above:

  • Keeping the user fees within the state (a 2% user fee applied to policies for 400,000 enrollees costing an average of $518/month would be around $4.1 million/month or nearly $50 million/year).
  • I don't think there's anything legally preventing states hosted by the federal exchange from establishing their own supplemental subsidies, but I'm pretty sure there would be a mountain of technical challenges involved. Moving to their own platform allows states the option of adding their own financial assistance down the road...which is exactly what states like California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, Vermont and Washington State have done already (about half the current SBMs).

To be fair, there are also some downsides to consider:

  • Potential technical headaches...which are mostly moot these days; the ugly days of HC.gov and some of the state exchanges having massive technological fails are long behind us, and setting up a new exchange is a relatively simple "plug & play" process these days (OK, I'm vastly oversimplifying it, but it's far more streamlined than it was a decade ago).
  • Potential state expense (again, the cost of states setting up their own exchanges has plummeted over the past decade...some states flushed hundreds of millions of dollars down the toilet for poor results back in 2014, but more recently I believe some states have been up & running for as little as $20 million or less as the technology has advanced and lessons on what to do and what not to do have been learned. I have no idea how much a Michigan-specific SBM would run, however.
  • Potential current enrollee confusion: Some states have seen tremendous confusion and chaos when they initially made the move from HC.gov to a SBM, but others have done so fairly seamlessly. I presume my home state would make sure to learn from other states experience on this. This is also a one-time issue.
  • Potential Ongoing consumer confusion: This is a branding/marketing issue. Michigan ACA enrollees have spent over ten years visiting HealthCare.Gov to sign up and might be thrown off, so it'll take awhile to get the word out that they need to visit a different website in the future. Again, this shouldn't be too big of an issue if done properly.
  • Lack of EDE integration: EDE stands for Enhanced Direct Enrollment, and refers to authorized 3rd-party websites/enrollment platforms which have been approved to have their software hook directly into the federal ACA exchange itself, including vendors such as HealthSherpa (one of the sponsors of this site). EDEs have been a growing boon for ACA enrollment on federal exchange states, but until now none of the state-based exchanges have been capable of letting EDEs hook into them. This is supposed to change next year, as Georgia (which is also in the process of moving to their own SBM) is allegedly going to be the first SBM to include EDE integration.

I don't know whether the Michigan bill package will ultimately pass or not (unlike the 2022 version, these only seem to have a single Democratic sponsor so far), but there's a very good chance of it happening. Here's the official summary (which covers all 6 bills in the package). I've highlighted a few noteworthy items:

Senate Bill 633 (S-3) would enact the "Michigan Health Insurance Exchange Act" to do the following:

  • Create a 12-member Board to govern the Exchange.
  • Require the initial Exchange Board to organize a nonprofit corporation within 60 days of the Board's first meeting to provide an individual marketplace for qualified health plans in the State.
  • Allow the Board to create committees for recommendations concerning the operation and implementation of the Exchange.
  • Prescribe the powers of the Exchange.
  • Require the Exchange to make qualified health plans available through its website and hotline beginning on or before January 1, 2026.

CMS pretty much requires states moving to their own SBM to spend at least one "transitional" year as a "FF-SBM" (Federally-Facilitated SBM), in which the legal, administrative and financial apparatus of the exchange are handled by the state but HealthCare.Gov still hosts the technical/platform portion of it. Currently Arkansas, Georgia and Oregon fall into this category (Arkansas has remained a FF-SBM since the outset and doesn't seem to have any intention of changing their status anytime soon). This means that Michigan would be a FF-SBM for the 2025 Open Enrollment Period and then become a full SBM for the 2026 OEP.

  • Require the Director of the Department of Insurance and Financial Services (DIFS) to certify a health benefit plan if the plan met the requirements of Federal law, State law, and the provisions of the Act.
  • Require the Exchange to implement an enhanced direct enrollment by the first open enrollment period in which the exchange's state-based platform is operational.

Well, now. Scratch the last "drawback" bullet off the list...assuming EDE integration is indeed doable without too much fuss.

  • Require the Exchange to allow health insurance carriers or web brokers to provide for automatic re-enrollment in a qualified health plan.
  • Prohibit the Exchange or a carrier offering health benefit plans through the marketplace from charging an individual a fee or penalty for termination of coverage.
  • Require the Board to establish an audit committee to contract an external auditor to provide at least one audit of the financial statements of the Exchange in each fiscal year, among other things.
  • Require the Exchange to charge assessment or user fees to health carriers to cover its operational costs.

Note that it doesn't specify exactly what the user fee would be; presumably that would come after a deeper financial analysis, although for reference, for 2024 HC.gov charges a 2.2% of premium fee for FFM states and 1.8% for FF-SBM states. Presumably Michigan's SBM would be able to come in at or below that level.

  • Require the Exchange to keep an accurate accounting of all activities, receipts, and expenditures and annually submit a report concerning those accountings to the Governor, Director, and the Senate and the House of Representatives.
  • Create the Exchange Fund within the State Treasury.
  • Specify that provisions of the Act that were applicable to qualified health plans also would apply to dental plans unless the dental plan were specifically modified otherwise.

Senate Bill 634 would amend Section 1261 of the Insurance Code to modify definitions in accordance with provisions of Senate Bill 633 (S-3).

Senate Bill 635 (S-1) would add Section 3406mm to the Insurance Code to require the DIFS Director to contract with the Exchange to certify qualified health and dental plans.

Senate Bill 636 (S-1) would amend Section 2212a of the Insurance Code to specify that a health insurer would have to provide to insureds upon enrollment in clear, complete, and accurate manner, as directed by DIFS, any information required by the Exchange created under Senate Bill 633 (S-3).

Senate Bill 637 (S-2) would add Section 3406nn to the Insurance Code to require DIFS to apply for a State Insurance Waiver to implement a State-Based Reinsurance Program and report to the Senate and House appropriations committees on money necessary to fund the Program.

Senate Bill 638 would repeal Section 3406w, which generally allows an insurer that delivers or renews a health insurance policy that provides coverage for prescription drugs to provide coverage for emergency and early refills that meet specified requirements until March 31, 2021.

Every bill except Senate Bill 638 is tie-barred to Senate Bill 633. Senate Bill 633 is tie-barred to Senate Bill 637.


The Affordable Care Act introduced health insurance marketplaces, also known as exchanges, that are designed to allow individuals and families to shop for private health insurance plans or dental insurance coverage. According to testimony, switching to the state-based Exchange from the current Federal exchange that the State participates in would improve Michigan residents' access to healthcare and generate money for the State to reinvest into its own Exchange.


Senate Bills 633 (S-3) & 637 (S-2)

The bills would have an indeterminate but significant fiscal impact on State government and an indeterminate fiscal impact on local units of government.

Senate Bill 633 (S-3) would require DIFS to implement a reinsurance program upon approval of a State Innovation Waiver. The impact to the State would include start-up costs and ongoing operational costs. In addition to DIFS, it is likely that other State departments would incur costs due to responsibilities associated with launching and operating the Exchange system. These responsibilities could include legal assistance and representation, information technology, and administrative assistance.

Hmmmm...I think Sen. Hertel and his colleagues might want to rethink the reinsurance provision, as David Anderson, Ezra Golberstein and Coleman Drake just published a paper about over at Health Affairs:

Sixteen states have used Section 1332 waivers to implement reinsurance programs that aim to reduce premiums and increase enrollment in the Affordable Care Act’s health insurance Marketplaces. Although reinsurance programs have successfully reduced premiums for unsubsidized enrollees, little is known about how reinsurance affects Marketplace premiums, minimum cost of coverage, and enrollment for the large majority of Marketplace enrollees who receive premium subsidies.

Using a difference-in-differences analysis of matched counties straddling Georgia’s borders to examine Georgia’s 2022 implementation of its reinsurance program, we found that reinsurance increased the minimum cost of enrolling in subsidized Marketplace coverage by approximately 30 percent and decreased enrollment by roughly a third for Marketplace enrollees with incomes of 251–400 percent of the federal poverty level. Marketplace reinsurance programs may have the unintended consequences of increasing the minimum cost of subsidized coverage and reducing enrollment. These outcomes are especially relevant in the present policy context of enhanced subsidies, which have substantially reduced the number of unsubsidized enrollees who would benefit most from reinsurance.

I've written about this a couple of times before, but Dave, Ezra and Coleman are the experts on the topic.

Aside from the reinsurance provision, however, this sounds like great news, and I hope to see it go through!

Estimates of annual costs of a reinsurance program in Michigan included in a 2022 actuarial study ranged from $71.0 million to $232.3 million, depending on the exact parameters of the program and the number of claims submitted. If the program successfully resulted in savings compared to the Federal exchange, Michigan would receive a significant amount of Federal pass-through dollars each year. Based on the experience of other states in operating reinsurance programs, it is likely that these Federal funds would be sufficient to cover a substantial portion of the costs of running the program.

he 2022 study suggested that approximately 65% to 70% of reinsurance costs would be paid through Federal pass-through funds. The State-based portion of any reinsurance program likely would be funded in part by assessments on the group health insurance market, user fees, and/or by a specific tax on providers or businesses. Based on the figures above, the State-based portion of the program likely would range from about $30.0 to $40.0 million over the first few years. This figure is similar to current costs for the State of Pennsylvania's exchange.

The exact costs of running a program would be significant but highly dependent on the details of the program. Start-up costs could potentially be amortized over a period of several fiscal years. Additionally, due to the non-profit structure and independent authority granted under the bill, it is possible that some funding would not be reflected in annual State appropriations.

Under Senate Bill 633 (S-3), members of the Board would not receive a salary, benefits, or other compensation but could be reimbursed for actual and necessary expenses. Current appropriations to DIFS likely would be sufficient to cover certification duties.

A one-time appropriation of $250,000 General Fund/General Purpose was included in the Fiscal Year 2020-21 budget to contract with a third-party for the actuarial cited above. The analyses included in the study would form part of the application for a waiver and likely would not need to be repeated. Other costs of completing an application likely would be sufficiently funded by existing appropriations; however, it is possible that data collection for the application and start-up period could require a contract with a third-party entity.

The Board would be required to contract with an external audit each fiscal year. While an exact estimate is unavailable at this time, the 2022 actuarial study estimated the cost of an annual audit of claim submissions and assessments by an external vendor at $10,000 per audit. The cost of auditing the financial statements of the exchange could be higher in initial years.

Senate Bills 634 & 636 (S-1)

The bills would have no fiscal impact on State or local government.

Senate Bill 635 (S-1)

The bill likely would not have a significant fiscal impact on State or local units of government. The costs of contracting with the exchange for certification likely would be covered by existing appropriations to DIFS. Additional costs likely would be paid from the overall appropriations made for the establishment of the State exchange.

Senate Bill 638

The bill would have no fiscal impact on the Department of Health and Human Services. The expiration of the temporary requirement for health insurers to allow early and emergency refills of prescriptions under the Insurance Code expired on March 31, 2021. Any indeterminate cost increase resulting from the expiration of allowing early and emergency refills that lasted longer than the original scripts (60 to 90 days) would have been incurred at that time.