A State-run Federal Exchange is the Worst of Both Worlds
January 25, 2012
As originally published in the New Hampshire Union Leader
At the center of the debate over the federal law known as ObamaCare is a debate over whether or not states should administer the federal rules and regulations in a supposedly state-run Exchange. New Hampshire would make a mistake with significant financial consequences if it allowed itself to be seduced into this foolish idea.
When the federal government adopted health care reform known as ObamaCare or the Affordable Care Act (ACA), the rules and regulations included a plan that each state should set up an Exchange, a new bureaucracy to administer the significant rules already adopted and the forthcoming regulations envisioned by the bill. States are encouraged to set up their own federally regulated bureaucracy – the state as federal extension agents – or else the federal government will administer an exchange itself.
As details have become apparent over the last year or so, it is clear that whether the federal government runs the exchange or the state administers its rules for it amounts to the same thing, that the costs of running an exchange will impose a significant burden on the state, and that not setting up a state-based exchange is likely to force the law to be re-opened and hence renegotiated.
In early days, some opponents of Obamacare nevertheless thought perhaps states themselves could blunt its impact by setting up their own exchanges. The Heritage Foundation, opponents of the federal law, had helped Massachusetts establish its pre-ObamaCare exchange called the connector and initially thought maybe other states should follow suit. After a few months looking into the rules and regulations, they concluded “a state would now have no more real control over an exchange it set up than one HHS established.”
The conclusion is obvious and at the heart of the exchange debate. Whether run directly by the federal government or mandated by the federal government and carried out by local agents is immaterial. The regulations and decisions come from Washington with perhaps a few window dressing exceptions. As such, we are not deciding between regulation and autonomy, we are deciding whether or not we want a puppet government.
If it’s all the same, why not run our own exchange even for those few admittedly insignificant rules we can control? The difference is money. The Massachusetts connector, although the prototype, administers a less complex system than the new federal law and its annual budget is $29 million. No one knows what a New Hampshire exchange would cost but it would be somewhere between $10 and $20 million.
Federally collected tax dollars would pay for the start up costs but after start up the state would pay for the exchange itself. With state government on the hook, the federal regulations would pay less heed to their costs so there would be more of them. With a federally run exchange, the federal government – which hasn’t the budget authority for them yet – would have to weigh financial costs.
I have written often of the folly of a federal bailout of state governments. I don’t think any of us wants to see a state bailout of the federal government.
By the way, the obvious decision to hold our fire on establishing an exchange is not irreversible. The state may at any point if it so chooses reverse course and implement one.
The last reason to avoid a state run exchange is what’s known as The Glitch. Michael Cannon and Jonathan Adler writing in the Wall Street Journal discovered that the health law provides for premium assistance programs in state run exchanges but not federal ones. This was an error drafting a bill which requires the bill to be reopened to correct. If only 20 or 25 states adopt exchanges, as looks likely, the law would have to be opened up if it isn’t repealed next year.
By not adopting an exchange, we increase the pressure to open the law to fix the glitch. We also increase the financial pressure on a law that counted on passing the cost of running the exchanges to the states.
But regardless of the pressure we may wish to exert, setting up a state exchange is a bad idea. A state exchange is a fig leaf layer of bureaucracy between us and the people who really make the rules. Setting up a puppet government to put a happy face on federal regulation does no one any favors, and it would cost us tens of millions of dollars each year that we don’t have.
UPDATE: Attached below is a letter from HHS Commissioner Toumpas to House Commerce Chairman Hunt, which lays out his objections to HB1297.
HB1297 would ban the State of New Hampshire from setting up a healthcare exchange.
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[…] Bartlett Center President Charlie Arlinghaus has been a leading opponent of setting up an New Hampshire Health Insurance Exchange, arguing that the state would have little say in how the exchange in run, but New Hampshire […]
[…] voice against New Hampshire setting up a state-based exchange under ObamaCare. Center President Charlie Arlinghaus wrote in January when momentum for a New Hampshire exchange was high: A state exchange is a fig […]
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