Creating roughly a hundred new health insurance exchanges, one for individuals and one for small businesses in each state, is not cheap. So far the Department of Health and Human Services has rewarded about $3.7 billion in exchange grants to the states according to a new Government Accountability Office report. Most of the money is for only a handful of states. The Affordable Care Act basically granted the HHS a blank check to provide states whatever level of funding that was necessary to help states establish their exchanges. According to report the vast bulk of this grant money was rewarded to the small number of states that plan to create their own exchanges. From the GAO:
Specifically, among states that have been awarded exchange grants, total funding awarded to date ranges from $0.8 million (Wyoming) to about $911 million (California). Approximately half the states have been awarded under $30 million in exchange grant funding, while 10 states have been awarded over $100 million (see fig. 2). Out of the approximately $3.7 billion awarded in exchange grants, the majority (about 85 percent) of funding has been awarded to states that as of March 7, 2013, have formally declared their intent and have received conditional approval from HHS to establish state-based exchanges that will be operationally ready for the initial open enrollment period beginning October 1, 2013. Conversely, states pursuing partnership exchanges have been awarded about 5 percent of the funding, and states in which a federally facilitated exchange will operate have been awarded about 11 percent of the funding.
A total of 18 states with roughly a third of the population fit this first category. While much of this is a one time cost it is still a significant expense for creating what is effectively an unnecessary extra layer of bureaucracy to provide a service to only a few million people. Beyond the initial start up cost it will also take more money to maintain the exchanges going forward. In most cases the cost of keeping the exchanges running will be added to the premium cost of everyone using them. Even if competition on the exchanges does marginally reduces prices it might not be enough to make up for the added cost of creating and maintaining this extra layer.