Is shutdown of the Kentucky state health exchange feasible?

Posted by on February 25, 2015

LOUISVILLE, Ky. — Introducing his Blueprint for a Better Kentucky on Monday, gubernatorial candidate Matt Bevin identified healthcare as one of his focus areas for improvement.

As Governor, I would close the KYNECT state exchange and facilitate the transition of enrollees into the federal healthcare exchange. Closing KYNECT would begin to free Kentucky from this financially ill-advised program and leave Obamacare management in the hands of the federal government.

While the plan as stated sounds simple enough, some may wonder whether a state can legally close their healthcare exchange, and return enrollment to federal responsibility? What impact would it have on those who have enrolled? What would such a transition cost? Would any federal money used to develop the exchange need to be returned?

Can a governor close the exchange?

Kentucky Governor Steve Beshear (D) issued Executive Order 587, which established the Kentucky Health Benefit Exchange on July 17, 2012. This was renamed KYNECT in May 2013. The state legislature did not pass a bill concerning the creation of the exchange. The constitutionality of the executive order was challenged in Kentucky Court, in David Adams, et al. v. Commonwealth of Kentucky and opinions rendered upheld the authority of the governor to create the exchange. The decision cited that the General Assembly deferred this power to the Governor in absence of affirmative legislation, and that the governor was not violating the state constitution’s separation of powers provisions, as he was taking action upon a federal mandate.

The ruling upholding the executive power to create the exchange can still be overruled in Kentucky Supreme Court. If the Kentucky Supreme Court finds that Beshear’s actions were an unconstitutional exercise of his executive authority, then the state exchange could only be saved with legislative action. If the court finds the powers were appropriately wielded, it also opens the door to utilization of an executive order to remove the exchange. By precedent, the governor would still be adhering to the federal mandate in utilizing the federal exchange, as 37 states presently operate.

Has a state exchange ever been closed?

With healthcare exchanges being relatively new, a state that has developed an exchange diverting control to the federal exchange has only happened once; with Oregon. Thirty-six of our 50 states opted not to set up exchanges at all, and have been completely dependent on the federal exchange from the program’s onset.

Oregon Governor John Kitzhaber, signed SB 99 into law on June 17, 2011. Unlike Kentucky’s exchange, the Oregon exchange WAS created within the state legislature.

The decision to move Oregon from a state exchange to the federal exchange, was rendered by the appointed board that managed Cover Oregon. The state has acted upon this decision sending Oregon healthcare through the federal website. Legislation soon followed in the form of SB1, which recently passed the senate, and  and is now being considered in the house.

What impact does it have on those who used the state exchange to enroll?

The Cover Oregon exchange website now defers new enrollment with a link to the federal exchange. Those who obtained their insurance through Cover Oregon for FY2014, were required to re-enroll for FY2015 via the federal exchange.

What will transitioning from a state exchange to a federal exchange cost?

Oregon believes the switch to use of the federal exchange will cost $5 Million.

The portion of the exchange used to enroll people in the Medicaid-funded Oregon Health Plan will be sent to the Oregon Health Authority. The cost is estimated at $35 million to complete. Officials estimate that 90 percent of that cost will come from federal sources, with the remaining 10 percent ($3.5M) from the state’s general fund.

State health exchanges are developed in strict adherence to federal meaningful use guidelines. This means the data gathered and formatted by the exchanges is designed to be universal and portable.

The exchanges were built with federal grants… does the state have to return such grant money?

A total of $253.6 Million dollars in grants was received for development of KYNECT; Oregon’s failed “Cover Oregon” exchange received $303 Million.

In an interview with KATU news correspondent Chelsea Kopta, Oregon CIO Alex Pettit stated that Oregon would not be returning any of the grant money used to establish the Cover Oregon exchange.

Where does the money come from to cover the expense of the switch?

The reported cost to develop KYNECT was $60 Million, leaving $193.6 Million in grants received for the development, unaccounted for in the process.

Kentucky received more than $11 Million in 2014 grants just to promote KYNECT with 622 employees.  It is unclear what amount of these funds have been spent.

Oregon CIO Alex Pettit confirmed that of their developmental grant funds, $57 Million remains unspent. (and would not be returned)

Why opt out of the state exchange program?

The estimated annual operation costs for KYNECT is a $39 Million burden on the Kentucky taxpayer. With no loss of service or functionality, utilizing the federal exchange will not only cost the state nothing, but will save them the annual administrative costs that are associated with the duplicitous service already being offered by the Federal Government.

Heading into the 2016 election cycle, the Obamacare model faces an uncertain future nationally, and likely will mean major changes to the exchanges. Utilizing the Federal exchange shifts any associated burden from the State to the Federal government.

Healthcare matters are sure to be a prominent discussion point in the Kentucky Republican primary gubernatorial election. In addition to the removal of Kentucky’s healthcare exchange, Bevin has also announced plans to modify the existing Certificate of Need Program, and Scope of Practice laws, while vowing to do everything within his power to roll back Beshear’s unsustainable expansion of Medicaid in Kentucky.

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Aaron Gillum

Aaron Gillum

Aaron Gillum is a journalist for ANM News and a 20 year tenured IT Professional, car enthusiast, amateur musician, skilled marksman, police volunteer and holds the titles of Kentucky Colonel, and Duke of Hazard, Kentucky.


  • Sally Oh

    Thank you for clarifying all of that. Can’t wait till he does that!!!