Why Obamacare is still no sure thing
The majority of state governors are Republicans, and they have the power to disarm the health care law.

Fibonacci Blue/Flickr (CC-by-2.0)

Tea Partiers in St. Paul, Minn., rally to stop the health care reform bill in Congress on March 13, 2010.

Article Highlights

  • States two choices to make that will put them in the driver's seat when it comes to Obamacare

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  • The idea that creating state exchanges would give states control over their insurance markets is a fantasy

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  • States that refuse to create health care exchanges would effectively be repealing a large part of Obamcare

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  • Medicaid expansion through Obamacare would throw millions of Americans into a system that is already bankrupting states

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Champions of Obamacare want Americans to believe that the president's re-election ended the battle over the law. It did no such thing. The Patient Protection and Affordable Care Act won't be fully repealed while Barack Obama is in office, but the administration is heavily dependent on the states for its implementation.

Republicans will hold 30 governorships starting in January, and at last week's meeting of the Republican Governors Association they made it clear that they remain highly critical of the health law. Some Republican governors—including incoming RGA Chairman Bobby Jindal of Louisiana, Ohio's John Kasich, Wisconsin's Scott Walker and Maine's Paul LePage—have already said they won't do the federal government's bidding. Several Democratic governors, including Missouri's Jay Nixon and West Virginia's Earl Ray Tomblin, have also expressed serious concerns.

Talk of the law's inevitability is intended to pressure these governors into implementing it on the administration's behalf. But states still have two key choices to make that together will put them in the driver's seat: whether to create state health-insurance exchanges, and whether to expand Medicaid. They should say "no" to both.

At its core, Obamacare is a massive entitlement expansion. Between vastly increased Medicaid eligibility and new premium subsidies, it is expected to bring 30 million more people onto the federal government's entitlement rolls. The law anticipates that the states will take on the burden of implementing the expansions, but states can opt out of both.

Running the exchanges would be an administrative nightmare for states, requiring a complicated set of rules, mandates, databases and interfaces to establish eligibility, funnel subsidies, and facilitate purchases. All of this would have to take place under broad and often incoherent statutory requirements and federal regulations that have yet to be written.

The exchanges would create unsustainable pressures on each state's insurance market, treating similarly situated people differently by providing far greater subsidies for those in the exchanges than those in employer plans — yielding perverse incentives that distort consumer and employer decisions and increase costs.

States would endure all this simply to become functionaries of the federal government. The idea that creating state exchanges would give states control over their insurance markets is a fantasy. The states would be enforcing a federal law and federal regulations, with very little room for independent judgment.

Governors know this. A group of them has already indicated that they will not build the exchanges, and several more seemed ready to opt out as the administration's deadline for state decisions approached on Nov. 16. Predictably, Health and Human Services Secretary Kathleen Sebelius tried to head them off by extending the deadline to Dec. 14. She will try to use the extra month to twist governors' arms. They should resist.

By declining to build exchanges, the states would pass the burden and costs of the exchanges to the administration that sought this law. And it is far from clear that the administration could operate the exchanges on its own.

Congress didn't allocate money for administering federal exchanges, and the law as written seems to prohibit federally run exchanges from providing subsidies to individuals. The administration insists that it can provide those subsidies anyway. But if the courts read the plain words of the statute, then federal exchanges couldn't really function.

Thus states that refuse to create their own exchanges would effectively be repealing a large part of the law—sparing their citizens from the job-killing employer mandate and from assaults on their religious liberty. In some cases people would even be spared from the individual mandate to buy coverage, since in the absence of exchange subsidies more families would qualify for exemptions from the mandate.

The Medicaid expansion, meanwhile, would throw millions of additional Americans into a system that is already bankrupting state governments and increasing costs in the private-insurance market. Medicaid's payments for services are so low that many existing beneficiaries have trouble finding physicians and other health-care providers who will accept them as patients. Enrolling more people without reform will push the system to the point of collapse.

In refusing the Medicaid expansion, governors should notify Washington that doing so means freeing themselves of Obamacare's "Maintenance of Effort" requirements. These would prohibit states participating in the Medicaid expansion from reforming their Medicaid systems to reduce costs.

Instead of following the Obama administration's plan, states should seek real reform. For example, they should demand that Washington transform the federal portion of Medicaid for non-disabled and non-elderly beneficiaries into a uniform block grant, with state discretion over eligibility and benefits. The goal should be to turn Medicaid into a premium-assistance program rather than government-run insurance. Medicaid could then be used to help people enroll in mainstream insurance plans. This is the way to help the low-income uninsured get the same kind of coverage as other Americans.

President Obama won re-election and Democrats maintained control of the Senate this month, but the states hold the future of Obamacare in their hands. Knowing the harm the law would do to their citizens, to the economy and to American health care, governors should refuse to become its enablers.

Mr. Capretta is a fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute. Mr. Levin is a fellow at the EPPC and editor of National Affairs.

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James C.
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