After ObamaCare was passed, one path of resistance was to encourage states to resist establishing Health Benefit Exchanges. By the end of 2011, this approach had become settled conservative orthodoxy. Republican governors like Wisconsin’s Scott Walker returned federal grants; and those who wavered on exchanges, like Virginia’s Bob McDonnell, faced attacks from the right flank.
After President Obama’s re-election, this approach has not changed. Florida’s Rick Scott suggested that it was time buy into a state-based exchange, but Tea Party activists appear to have beaten him back (according to the Tampa Bay Times). Even The Wall Street Journal editorial board has come down solidly against states establishing exchanges. This position made sense before President Obama’s re-election. Holding onto it today risks dooming states to irrelevance as ObamaCare evolves. Republican governors’ failure to adapt to the fact that ObamaCare will not be repealed will hinder, not help, any future patient-centered reforms.
As of January 3, the U.S. Department of Health & Human Services has approved 18 state-based exchanges and two “state partnership exchanges” (a sort of hybrid state-federal exchange). The deadline for applying for approval of a state-based exchange has passed, and states which failed to apply have missed a significant opportunity to have any influence over ObamaCare’s future. They should reconsider and ask for extensions.
Let’s examine some of the arguments against state-based exchanges:
First, opponents argue that the federal government never anticipated having to run its own exchanges, and will not be ready to implement them on time. That made sense before the election, when opponents were trying to convince the voters to stop something that had not really started. However, with Obama’s re-election, this point becomes irrelevant. Whether the federal government runs its exchanges competently or incompetently, it will run them nevertheless. The Weekly Standard‘s Jeffrey A. Anderson (an opponent of ObamaCare) has written about cronyism in the awarding of contracts to establish federal exchanges. His article describes an ugly business. Nevertheless, it hardly describes an agency idle in doling out cash to contractors for federal exchanges. In any case, who can seriously believe that if federal exchanges are not ready to start enrolling people by October, they will just give up? ObamaCare will not self-repeal because of another missed deadline.
Second, opponents argue that regulations and guidelines are unclear. But this is a straw man: Regulations and guidelines are never clear until interested parties engage them. Medicare regulations, for example, are never settled: Every year sees comment letters demanding modifications to proposed changes. And Medicare was established in 1965! Indeed, the only way for states to clarify or have any influence on the regulations is to establish exchanges.
Third, opponents claim that exchanges will be too expensive to operate. A recent article by Heritage Foundation analysts compares the 3.5 percent premium tax that will fund federal exchanges with the various means of funding state-based exchange. But exchanges are going to exist — whether federal or state — so these operating costs are unavoidable. In any case, they verge on trivial. The Citizens’ Council for Health Freedom (which opposes ObamaCare) has compiled a list of exchanges’ annual operating costs. California received an operating grant of $288 million for the period ending December 2014. However, this includes set-up costs. Even if we consider that apparently large figure as an estimate of annual operating costs alone, it amounts to only $8 or so per resident. If ObamaCare had been defeated, there would be no reason to incur these costs. However, the only choice now is whether these costs are funnelled through the state or federal government.
Fourth, opponents claim that state-based exchanges will be so in name only. In fact, they will only be water-bearers for the federal government. But this is clearly not true. For example, a state can selectively contract with a few health insurers or allow any licensed insurer to participate in its exchange. To be sure, the relationship will not be without conflict, as the history of Medicaid has shown. Nevertheless, a state-based ObamaCare exchange must, by definition, have some margin of independence over a federal exchange.
Which brings us to the benefits of a state-based exchange:
First: It keeps a toe jammed in the door of government-run health care. To be sure, the toe is broken, and the door is made of heavy oak, but ignoring it is not productive. Take Medicaid for example. Suppose states had decided not to participate in Medicaid. There is no way that conservatives and Republicans would have developed the policy of reforming Medicaid by block granting cash to the states. It would have been too far from the status quo to be considered.
Second: As ObamaCare’s weaknesses and costs become more apparent, states which are operating exchanges will have a far greater voice in future reforms than those that have simply said no. The latter will simply be ignored as the participating states and the federal government adjust ObamaCare to their needs.
Third: Although the media have already declared Hillary Clinton the next President of the United States, there is surely a good chance that an ObamaCare opponent might win the 2016 election. By this time, every interest group — insurers, physicians, manufacturers, hospitals, et cetera – will have accommodated ObamaCare. There will likely be no chance for non-participating governors to reach past those groups’ lobbying efforts to join with the next president to make whatever reforms are possible. ObamaCare will have to be reformed from within, and states which have not set up exchanges will be treated as alien invaders if they try to get involved after the 2016 election. It would have been better if ObamaCare had been repealed. Instead, it was confirmed by last November’s election. Reforming it will be a huge political challenge. States which refuse to establish Health Benefits Exchanges are shirking this challenge.
(Sebastian Alexander is a health care executive. He can be reached at email@example.com.)