Pro/con: Should states accept ACA option of health exchanges?

The postelection rollout of the Obama administration’s plans to implement insurance exchanges in time for January 2014 enrollment has met substantial state government opposition, raised more questions than answers, and flashed warning signs of a train wreck ahead.

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. 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 Obama-care — 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.

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.

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 nonparticipating 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 Miller is a resident fellow at the American Enterprise Institute.

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