Governors should let Feds build their flawed-system and then duck consumers’ flak

A 33 states — a clear majority — still are not fully on board with running their own exchanges to comply with the dictates of the Affordable Care Act (ACA). Most of those states — as many as 23 — would rather leave the daunting implementation process entirely in the hands of federal officials. The strong resistance of many state governors — who are being asked to build the key regulatory architecture for Obamacare — is fully justified. While it may simply be good short-term politics for Republican state officials looking to avoid the blame for ongoing complications and contradictions that were made in Washington, it should also reinforce a more principled strategy to support a better version of choice and competition for diverse health insurance products.

The fuzzy sales rhetoric for ACA-style health exchanges masks their real nature. The blueprint for implementation of Obamacare goes far beyond the modest restructuring of problematic portions of the health insurance market. The more ambitious political agenda includes three major goals:

• Expanding the federal government’s regulatory control over private health insurance,
• Facilitating substantial income redistribution through new premium assistance subsidies,
• Establishing greater voter loyalty from constituencies increasingly dependent on government-brokered channels for health care.

The ACA’s architecture adopts only the appearance, but not the reality, of private sector delivery and state government administration in order to disguise and carry out most of this radical takeover plan. State-administered health exchanges are key mechanisms to enforce mandates requiring employers to provide ACA-approved coverage, and individuals to purchase it. The exchanges will have every incentive to limit competition from private market alternatives. They also will place maximum emphasis on expanding enrollment in an unreformed Medicaid program. Dozens of state governors have complained primarily about the uncertainties, costs and complexities involved in implementing state-based health exchanges for the first time. Even the recent wave of regulations issued over the last two months has failed to answer their important questions. The timetable to meet already unrealistic 2014 deadlines has become even shorter. The Obama Administration insists it can deploy initial versions of exchanges run by the federal government in holdout states in time for 2014. But the ability to put in place systems to coordinate the flow of integrated data necessary for eligibility and payment operations, let alone for adequate customer service, remains questionable. The White House desperately needs the infrastructure and experience of state-level officials to pull off an unprecedented nationwide rollout. And it wants state governments to serve as political heat shields to absorb most of the blame and burden for what is likely to go wrong. State opponents of ACA-style exchanges should go beyond complaining about unclear rules and high costs. First, they should support the litigation strategy of the state of Oklahoma, which is challenging in federal court the validity of an Internal Revenue Service rule that authorizes federally run exchanges to distribute ACA premium assistance tax credits to their enrollees. The legislative text of the health law passed by Congress in March 2010 is quite clear that only health benefits exchanges “established by a state” are authorized to provide such tax credits. If the state’s challenge succeeds, federal exchanges will pose little threat to non-participating states. Second, for an alternative version of coverage expansion in states, governors should insist on mechanisms that are simpler, more consumer-friendly and scaled back to work within existing capabilities and institutions. Governors should insist that rule-making for ACA exchanges operate through more formal and final legal channels. If state opponents of ACA exchanges decline to be merely tax-collecting branch offices for the federal welfare state’s new insurance mandates, they can force federal officials to return to the negotiating table with states and their constituents as equal partners. Thomas P. Miller is a resident fellow at the American Enterprise Institute (AEI), and author of “When Obamacare Fails: The Playbook for Market-Based Reform.” Readers may write him at AEI, 1150 17th Street NW, Washington, DC 20036.