The Affordable Care Act’s (ACA) implementation has been marked by intense and unexpected intergovernmental battles.  In particular, states were asked to play a lead role in one of the most important elements of the law, the creation of health insurance exchanges.  However, states choosing not to create an exchange would cede control to the federal government.  This created a dilemma for state-level Republicans who wanted to maintain autonomy but did not want to comply with a law they were trying to eliminate by lawsuit.  Many hedged their bets until after the Supreme Court ruling and 2012 elections.  For example, nearly 80% (38) of states accepted multi-million dollar exchange establishment grants, including 18 states led by Republican administrations.  Ultimately, only 17 states, including four led by Republican governors, opted to create their own exchange, with another seven states choosing a partnership model. 

Why did so few Republican-led states opt to create an exchange?  To answer this question, I examine the factors that shaped whether a Republican governor supported a state-based exchange and their success at advancing this agenda in the legislature.  Similarly, I explore the role that interest groups played in facilitating or blocking this process.

Partisanship and ideology were key factors driving state decisions on the exchanges; however, decisions were not made strictly along party lines or consistently across institutions within a state. The Obama administration’s efforts to encourage state control focused on negotiating with a state’s executive branch, promising flexibility and funding.  Although governors were the focal point of policymaking, they faced multiple constraints in advancing their political agenda.  Despite support from traditionally powerful interest groups such as the health insurance industry and small business associations, the growth of the Tea Party complicated decision-making for Republicans otherwise inclined to create an exchange.

In-depth case studies in Idaho, Michigan, Mississippi, and New Mexico were employed to examine state decision-making on the exchanges.  Idaho and New Mexico ultimately created a state exchange, Michigan a partnership exchange, and Mississippi defaulted to a federally run exchange.  Each state was led by a Republican governor, three of whom changed positions over time on whether to push for a state-based exchange.  These states were chosen because they vary from each other in important ways, including unified vs. split control between the governor and legislature, support for President Obama in the 2012 elections, characteristics affecting bureaucratic capacity, and level of competition in the individual and small group insurance markets.  The analysis drew on more than 100 interviews with leaders in the legislative and executive branches at the state and federal levels, as well as on publicly available data sources such as opinion polls, media coverage, and government documents.

Understanding the political factors that shaped state decisions to create an exchange or cede control to the federal government is crucial to evaluating the ACA’s success and informing future reform efforts.  These lessons are also applicable to the implementation of other elements of the ACA, such as the Medicaid expansion, as well as to federal-state policymaking more broadly.