On March 06, 2013, Governor Pat McCrory signed into law Senate Bill 4 and added North Carolina to the growing list of states that have refused to take part in the health insurance exchanges mandated by the recent federal healthcare overhaul. As a result, more than half of the states have declared that they will not set up an exchange. A statement from McCrory can be found here.
When the Supreme Court ruled on the Constitutionality of the law in June of last year, they struck down a portion of the law that required states to set up these exchanges as an expansion to the Medicaid program. With the rest of the law upheld, several conservative leaning groups around the country moved to put pressure on state legislatures to opt out of creating an exchange. Twenty-six states have now done so, and seven others have sought a third option of an exchange jointly managed (and funded) by the federal and state governments. All told, that means that the federal government is now in charge of, either in part or in total, the exchanges of 33 states.
By “opting out,” the states haven’t really blocked the creation of an exchange or prevented any expansion of the state’s Medicaid program. Instead, the exchanges will still be set up and the federal government, not the states, will be wholly responsible for its implementation and funding. For North Carolina, it means that roughly 500,000 people who currently are not eligible to participate in Medicaid but will be eligible to participate in the exchange will have to do so through a federal agency, specifically the Department of Health and Human Services. In a state with its own exchange set up, a person would have to go through the resulting state agency. That state agency would be under the jurisdiction of the DHHS as well.
The only question that remains is what happens now for North Carolinians who don’t currently have any kind of health insurance? Under the structure of the law, the exchanges are supposed to be a low cost method for Americans to satisfy the new federal requirement to purchase health insurance, the infamous “individual mandate." Despite a constant barrage of sound bites from DHHS director Kathleen Sibelius to the contrary, the department seems woefully behind in putting a plan in place to have the exchanges up and running by the required deadline of October 1, 2013.
The problem is the law itself: it simply wasn't ever designed with the idea that states wouldn't be participating. Aside from the massive logistical nightmare that this creates for the federal government, including having the IRS review the income of every citizen in the exchangeless states to determine the level of subsidy they qualify for, there is a bit of a problem in terms of funding.
As outlined in section 1311 of the law, the Secretary (that’d be Sibelius) can issue grants to help set up the exchanges, and can even continue those grants after the initial set up in order to help the exchange get established. But, in section 1311, subsection d, part 5, paragraph A of the law it is specifically stated that no federal funds shall be used in the exchanges after January 1, 2015.
Not only is there no funding mechanism for a federally run state exchange, eventually any federal funding at all will be illegal. Meaning that even if the exchanges are set up, if Congress doesn’t pass another law next year to remove that barrier (unlikely given the political climate in Washington), the subsidies provided by the exchange cannot continue a year later because the money will not exist. Which was the reason why opposition to the exchanges increased in the first place. It's hoped that the over-complexity and financial difficulty that this creates will cause the law to become so unsustainable that it will force a repeal.
In short, things are up in the air now. Because the idea of federally run state exchanges was never planned for, and time is limited to create a plan that works with the law as it exists, people looking for answers on this are just simply going to have to wait. And the answers that come will be hastily thrown together and may not last very long.