As health care costs rise, could Michigan offer its own insurance?

As health care costs climb, Senate Democrats want Michigan to replace the federally operated health insurance marketplace here with one run by the state
They say it could shave insurance costs and set the stage for a state-based health plan
Republican critics argue the numbers are fuzzy and the risk is too big

Thousands of Michiganders could save big if the state were to create its own online health-insurance marketplace, rather than having residents enroll in the federally run healthcare.gov, according to several Senate Democrats.

And there’s more savings down the road, said Sen. Kevin Hertel, D-St. Clair Shores, sponsor of a package of bills that would establish a state-based health insurance exchange.

Once a state-based exchange replaces healthcare.gov in Michigan, the state could offer its own “basic health plan,” said Hertel, who chairs the Senate Health Policy Committee.

“People are losing their coverage simply because it’s unaffordable,” Hertel told Bridge this week. “I’m not saying we can fix all of that, but I think it makes a better case that we, as a state, should have more control over the individual market here in Michigan.”

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The Democratic-led Senate passed the bills last week. If the legislation is signed into law this year — and Hertel acknowledges the bills face “an uphill battle” in the Republican-dominated House — the exchange could be up and running for 2029 plans, Joe Sullivan, who oversees innovation and research at the Michigan Department of Insurance and Financial Services, told lawmakers.

A new report paints a stark picture of the skyrocketing cost of health care: By 2034, an aging population and expensive drugs will help drive national health spending to nearly $9 trillion, or about 20.6% of the economy, compared with $5.3 trillion and 18% in 2024, according to an analysis by the US Centers for Medicare and Medicaid Services, released Wednesday.

Already, insurance costs jumped more than 20% this year for Michiganders who purchase their coverage at the federally operated www.healthcare.gov, as enhanced tax credits that reduced premium costs expired.

Replacing the federally based marketplace would be complicated and costly. A report by the Senate Fiscal Agency called the financial impact on the state “indeterminate but significant.” Quoting from another report, it placed the annual cost of operating an exchange at $50 million to $60 million initially.

Sullivan puts the costs lower — $8 million to $10 million for start-up costs, and $30 million to $40 million a year after that, he told lawmakers at a June 3 hearing.

While user fees from insurers would cover much of the costs, the state might have to also use general funds.

“There are a lot of other logistics to figure out,” Sullivan said, referring to the long process of setting up an exchange — one that requires federal approval. “We would need to create a state fund, seat the board, create the website, set up overall functionality, all with coordination of stakeholders and vendors.”

But some Republicans worry those cost estimates are too fuzzy and there is no guarantee for savings. Similar bills, known collectively as the Michigan Health Insurance Exchange Act, failed two years ago.

In a hearing this month on the new package, Sen. Mark Huizenga, R-Walker, recalled the state’s beleaguered unemployment computer system, MiDAS, that was linked to years of scandal, as well as MiSACWIS, the Michigan Statewide Automated Child Welfare Information System, which led, in part, to continued federal oversight of the state’s child welfare system.

“Our track record of software platforms in the state is not good,” Huizenga said.

“Everyone here knows software is always more expensive than you think. Implementation is more expensive than you think,” he said. “In my mind, the risk is far greater than the benefits.”

Amid the unknowns, here’s what we do know.

The basics now

The federal marketplace or “exchange” — accessed at www.healthcare.gov — launched in 2013, with plans beginning in 2014. It was the result of the Affordable Care Act, or Obamacare, which also expanded eligibility for Medicaid to adults with incomes up to 138% of the federal poverty rate.

Insurers pay fees to the federal government to sell plans on the marketplace. Fees fluctuate, but are 2.5% this year — $2.50 for every $100 in premium dollars the insurer takes in.

It adds up fast.

The Michigan Association of Health Plans, which represents most of Michigan’s insurers, estimated that a 2.75% fee on health plans would generate $70 million annually.

By running their own exchanges, the states are able to keep those fees, covering the costs of operating the exchange and establishing a reinsurance pool to cover extraordinarily high-cost beneficiaries.

That pool offers a “stopgap” for insurers, protecting insurers from the costs of those outlier patients and allowing them to keep premiums more steady, said Brian Mills, deputy director of commercial markets at the Michigan Association of Health Plans.

The association, which wants better assurances that the fees that insurers pay on the exchange would be used for the reinsurance pool, remains“neutral” on Hertel’s legislation as it stands now.

(Editor’s note: The Michigan Association of Health Plans is a sponsor of Bridge Michigan’s Health Watch newsletter. It had no role in the reporting, writing or editing of this article.)

Nearly two dozen states now operate their own exchanges. Two others — blue-state Oregon and red-state Oklahoma — are working toward operating their own exchanges as well, according to CMS.

Ten of the states also operate reinsurance pools with federal approval, using the money to lower premium costs, according to State Based Network, which represents the 21 state-based exchanges.

A man gestures while seated at a desk with an American flag in the background. — State Sen. Kevin Hertel, D-St. Clair Shores, said his package of bills likely won’t clear the Senate this year. Still, he said, ‘the only thing that works around here is persistence.’ (Robin Erb/Bridge Michigan)

State plans can also build in flexibility for longer enrollment periods and greater outreach. They also can set aside funds for “navigators” to help beneficiaries obtain and retain coverage. (The Trump administration last year slashed nearly all funding for navigators.)

And a state-run marketplace can also provide a single entrypoint for consumers who don’t otherwise get coverage through an employer or Medicare. From a single website, they’d find out whether they are eligible for Medicaid or need to purchase a plan on the marketplace.

Could it cover more people? Maybe.

Enrollment in federal and state marketplaces fell this year as insurance costs increased.

That’s because COVID-era enhanced premium tax credits were allowed to expire at the end of 2025, driving up the costs of monthly premiums. Additionally, thousands of Michigan Medicaid enrollees have lost coverage over the past 16 months or so with no clear reason — a loss that will likely get worse as enrollees face more paperwork requirements beginning in 2027.

But state-based marketplaces might mitigate against such losses. As marketplace prices shot up at the beginning of this year, state-based operations lost fewer consumers than the federally operated healthcare.gov, according to an April analysis by Wakely Consulting Group, a national firm focused on health care management. By April, 92% of consumers in state-based exchanges remained, compared to just under 82% in the federal marketplace.

Moreover, a state-based exchange ultimately will enable the state to offer its own Basic Health Plan, for Michiganders whose incomes are too high for Medicaid, but too low to cover the costs of premiums on marketplace plans — in other words, those likely to go uninsured.

Michigan wouldn’t be the first with such a plan. Minnesota, New York and the District of Columbia now offer these plans.

But how the state would fund that extra program is unclear.

New York announced in March that, while the state will continue to operate the insurance exchange, it will stop offering the basic insurance plan because of federal cuts under President Donald Trump’s “One Big, Beautiful Bill.”

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