Oct. 1, 2013 is a focus of increasing anxiety in this country. That’s the date when enrollments begin for the federally run health insurance exchanges, created under the Affordable Care Act (ACA). No one really knows what to expect, but it could be far worse than advertised —and for a reason that has more to do with the federal deficit than health care.
What’s anticipated is unsettling enough. President Obama speaks of inevitable “glitches and bumps” in the implementation. Senate Finance Committee Chairman Max Baucus (D-Mont.) sees the possibility of “a huge train wreck” if the public isn’t adequately educated and prepared. Supporters of the ACA, especially Democrats in the Congress, are nervous about taking the blame if the exchanges don’t unfold as intended.
All these worries are legitimate. The American people, already burdened by a numbingly complex, inefficient and inequitable tax system, now wonder if an increasingly government-run health care system will follow suit. Many are concerned that some employers will dump their current health care plans and pay the relatively modest fine. There’s also worry that young people will opt out of the exchanges (preferring to pay the small penalty), leaving the exchanges with a disproportionately older and sicker pool. Then there’s the very real uncertainty surrounding the ACA’s ultimate cost — illustrated by the impact of Medicare alone, which the Office of the Chief Actuary of Medicare estimates could cost cost $10 trillion more than claimed.
Amid all these concerns and speculations, almost no attention is being paid to the opportunity that the ACA’s insurance exchanges could represent for state and local governments’ retiree health care programs. It’s time to think about it because the consequences could be far-reaching.
States in a deep hole
We already know that many state and local governments are in a financial hole that keeps getting deeper. A newly released report by the U.S. Government Accountability Office (GAO) makes clear that, absent significant reforms, the fiscal picture for most state and local governments will steadily worsen through 2060. A main cause, in addition to Medicaid, is the cost of health care for state and local government retirees. These largely unfunded obligations are similar to the pressures on the federal government to fulfill its unrealistic Medicare promises.
But there is a critical difference when it comes to how state and local governments can approach these obligations compared to the federal government. State and local governments can’t print money and typically have “balanced budget” requirements. More often than not, retiree health benefits are not guaranteed under state constitutions, are not insured, and are not protected by federal law, which means the systems in place can be changed.
States that offer extremely generous health benefits for government retirees, and which have little to no pre-funding for those benefits, could choose to move their retirees into the Affordable Care Act’s new exchanges. State and local governments would likely continue to contribute by paying some premium support to individual retirees for healthcare, but the federal government and/or participants in the exchanges would pick up much of the tab. For these states, the exchanges offer a chance to shore up their finances and relieve state taxpayers of some of the looming burden of financing all those retirees. It could be a huge opportunity for states and localities in desperate need of fixing their long-term finances, and one that they should seriously consider in the coming months.
Reward for irresponsibility
The impact doesn’t end with a collection of states relieved to have better balance sheets and financial positions. What does it mean for taxpayers?
It’s not as if taxpayers in those states will suddenly be free of the financial burden of providing retiree health care benefits. A significant portion of the tab would be passed on to the federal government. But the overall tax burden will shift, and in ways that Americans in other more fiscally responsible states may not appreciate. Since the exchanges are federally sponsored, much of their cost will ultimately be shared among all the nation’s taxpayers. So residents in those states who push retirees onto the exchanges will get to off-load some of their financial burden to the rest of us.
Moreover, the cost of the exchanges could grow precisely because more retirees are joining the pool. And if young people forego the exchanges in large numbers, it will put upward pressure on the total costs and related insurance premiums over time.
So the impact of the insurance exchanges could be good news for some state and local governments and residents, while not so good news for the rest of us. As with so many major federal initiatives, the outcomes are far from certain. That is particularly the case with the Affordable Care Act, which rivals some of the New Deal legislation in its complexity. At the very least, however, we should recognize both the risks and opportunities — including what could unfold at every level of government — and be prepared for the results.