“Exchanges” Will Test States’ Willingness to Defeat ObamaCare

Last month’s elections demonstrated convincingly that the American people are already fed up with the new health reform bill. Anti-ObamaCare Republicans took the majority in the House of Representatives and increased their numbers in the U.S. Senate. A few days ago, a federal judge in Virginia ruled that ObamaCare’s individual mandate is unconstitutional, but let the rest of the law stand and declined to issue an injunction. The next two years will be interesting, to say the least. Repeal of the legislation is unlikely before a future president takes office in January 2013.

However, the federal government relies on states to do the reform’s dirty work. Fortunately, Republicans took control of legislatures and governors’ offices in twenty states last month, up from nine. This single-party rule should make blocking the health overhaul relatively easy. Even in states where power is divided between the parties, almost every state should be able to succeed in keeping the health overhaul at bay until it is slain.

Unfortunately, advocates of consumer choice will be disappointed to learn that some state politicians who proclaim that they want to defeat ObamaCare are actually facilitating it, and falling under the influence of lobbyists for special interests that will profit from it. As a result, they are being lured into negotiations to draft legislation that will establish state-based “exchanges” that will limit people’s choice of health insurance under the new law.

Soon after the election, I was speaking to a Republican state legislator who asserted a commitment that ObamaCare would be repealed. However, the legislator also related discussions with business interests who are interested in participating in the new exchanges. It is not difficult to identify these business interests: They include IT (information technology) vendors and consultants, health insurers who believe that they can dominate the exchanges to the detriment of smaller competitors, and brokers who hope to get paid by government to serve as “navigators” in the exchanges.

The U.S. Department of Health & Human Services must approve states’ proposals by January 1, 2013, so that the exchanges can be up and rolling by January 1, 2014. This state legislator expressed a sense of urgency about getting the state’s legislation and proposal in order to meet the deadline. To my query about why the state would want to establish a program governed by a law that will not exist when the program comes into effect, this state legislator had no response.

Since the election, I have heard similar stories from many states. And it gets worse: Many state legislators appear to believe that they can rescue their state budgets from exploding Medicaid spending by quickly establishing the new exchanges.

This comes from (what is surely a misreading of) a policy analysis by Dennis G. Smith and Edmund F. Haislmaier of the Heritage Foundation. Mr. Smith and Mr. Haislmaier pointed out an unintended consequence of the health overhaul bill: If states drop Medicaid and direct their low-income residents into ObamaCare exchanges (which will be fully subsidized by the federal government), this would result in over one trillion dollars of budgetary savings to states during the years 2013 through 2019.

However, this was a warning about the national fiscal consequences of the health reform bill: A prediction, not a prescription. Although any conservative should cheer a state’s reducing its Medicaid budget, simply exploiting the new law to transfer liabilities to the federal fisc hardly solves the national challenge of health spending that is out of control. However, the perverse incentives resulting from such a “reform” would surely dissipate a state’s will to defeat ObamaCare after the next electoral cycle.

Furthermore, states will have to bear the long-run administrative and bureaucratic costs of running the exchanges. These costs will quickly run into tens of millions of dollars annually.  (Massachusetts Commonwealth Connector spends over $26 million a year on IT vendors and consultants alone.) An iron law of public spending is that every dollar of expense to taxpayers is a dollar of revenue to businesses that profit from the growth of government. Once these contracts are signed, it will be very difficult to get these businesses to join a coalition to defeat ObamaCare.

Finally, there are rumors of conservative governors who intend to establish state-based exchanges in order to provoke a hostile response from the Administration, and a denial of certification by Secretary Sebelius. According to the script, this will “prove” that ObamaCare cannot work.

But the American people already know that ObamaCare cannot work. Nor can it be outsmarted. It must be defeated. State politicians who fritter away valuable legislative time in negotiations about how to establish a health insurance exchange threaten the defeat of this harmful legislation.

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