Texas could adopt a state-based health insurance marketplace: Here’s what that means

Through the Affordable Care Act, Texans have access to federally subsidized health insurance plans. While the number of enrollees in this period has already doubled since 2020, the state has an opportunity to continue to expand access. By taking over operation of the individual health insurance marketplace from the federal government, Texas can realize the following benefits:

• Hundreds of millions of dollars in savings by operating it ourselves, instead of paying the federal government to do it. These savings could be re-invested in efforts to make health insurance more affordable for Texans.
• A more user-friendly and seamless user experience, especially for those unsure of whether they are eligible for Medicaid or subsidies on the Individual Market.
• Greater flexibility to develop and implement a State Innovation Waiver to improve the operation of the exchange and the affordability of health insurance.
• A streamlined enrollment process and the ability to make the exchange more informative and useful, with information tailored to Texas consumers.

Here’s a look at how we get there:

What is the health insurance exchange?

The health insurance exchange is a place where individual health insurance plans that comply with requirements of the ACA and are eligible for subsidies are sold. Under the ACA, states can establish their own exchange, or the federal government will do it for them. Texas insurers currently utilize the federal exchange, which is located at healthcare.gov. Fifteen other states currently operate their own independent exchange.

How does the money work? Where do the savings come from?

The federal government assesses a user fee on all health insurance plans that utilize the federal health insurance exchange website. For both 2022 and 2023, that fee was 2.75% of premiums. In 2022, Texas had about 1.8 million enrollments — if that held steady over the course of the year, our annual user fee would have totaled about $338 million. In 2023, enrollment has increased to at least 2.3 million, meaning that the annual user fee for Texas this year will be even higher.  

If Texas were to take over operation of the exchange, it would be able to use the revenue from these fees instead of sending them to Washington.  

A previous analysis of the cost for Texas to develop and operate an exchange estimated annual costs between $97-$137 million — with earlier years at the higher end of that range due to startup costs. Even if the high end of that estimate were to double, Texas would still realize tens of millions of dollars in net savings.

Didn’t other states fail publicly when operating exchanges?

When the ACA was first being implemented, some states — and the federal government — had very public failures with the operation of their exchanges. However, nearly a decade has passed, and the technology, software and processes utilized in successful exchanges have been refined and improved. These options are now readily available and capable of being implemented reliably, and 15 other states now fully operate their own exchange.

Who will operate the exchange? 

Federal law allows states to designate a state agency or establish a non-profit to run and operate the exchange. Most other states that have successfully established and operated exchanges have chosen the non-profit option, citing the greater agility that a private entity has in performing business operations.  

What’s a State Innovation Waiver?

Federal law allows states to ask the federal government to waive certain provisions of the ACA as part of innovative programs to improve upon its goals. For the waiver to be granted, it must meet certain requirements and stay within certain guardrails. 

In broad terms, the waiver must show that the Texas exchange would not increase federal spending, while also meeting or exceeding the number of people with insurance that is at least as comprehensive without the waiver. Because it is difficult for the federal exchange to make state specific changes, states that run their own exchange have greater flexibility in their waiver requests, which could open the door to more innovative and creative improvements.