The Right Prescription

The States Can Still Kill Obamacare

By taking aim at its insurance exchanges, the law's Achilles' heel, they can do it in.

By 7.9.12

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Now that conservatives and libertarians are beginning to recover from the injuries they sustained by banging their heads against walls, desks, and other hard objects on June 28, perhaps it's a good time to introduce a ray of hope that might have seemed absurdly Pollyannaish during the dark hours immediately following the Supreme Court's surreal Obamacare ruling. Although the voters can put an end to the madness on November 6, the states don't need to wait until Election Day to take aim at a point of vulnerability that remains in place despite the Court's latest caprice. They can refuse to implement the law's insurance exchanges.

The exchanges didn't receive the attention their importance merits while the press, public, and political establishment remained intently focused on Obamacare's individual mandate and the possibility that it might be ruled unconstitutional. The law calls for the states to set up these new bureaucracies, whose ostensible purpose will be to provide "marketplaces" in which people with no employer-based health insurance can shop for coverage at competitive rates. Now that the Court has upheld the individual mandate, these insurance exchanges constitute the key to the success or failure of the law. They are also its Achilles' heel.

How's that? Well, as the Cato Institute's Michael Cannon succinctly puts it, "Without these bureaucracies, Obamacare cannot work." And, oddly enough, the law doesn't actually require states to set up these "marketplaces." Moreover, there is no rational incentive for them to do so. If a state sets up an exchange, it then must pay for it, which won't be cheap. Cannon writes, "States that opt to create an exchange can expect to pay anywhere from $10 million to $100 million per year to run it." This is a burden that the states, most of which are already in deep financial trouble, are not likely to embrace with enthusiasm.

The federal government can set up its own exchanges, in theory, but Obamacare stipulates that Washington would then be required to pick up the tab as well. And, as Cannon goes on to point out, "The Obama administration has admitted it doesn't have the money -- and good luck getting any such funding through the GOP-controlled House." And it gets worse. If the federal government is forced to set up an exchange, it faces yet another huge problem. As Sally Pipes and Hal Scherz write, "The text of the law stipulates that only state-based exchanges -- not federally run ones -- may distribute credits and subsidies."

Thus, if a state refuses to set up an exchange, the feds have no real ability to do so either. The states have an opportunity, therefore, to shoot a poison arrow directly into Obamacare's Achilles' heel. Among those who get this is the Governor of Florida. That is why, when Rick Scott announced that his state would not comply with Obamacare's Medicaid mandate, he also noted that Florida would not be setting up any state-run insurance "marketplace": "Floridians are interested in jobs and economic growth, a quality education for their children.… Neither of these major provisions in Obamacare will achieve those goals."

Scott isn't the only governor to balk at moving forward on state-based exchanges. Scott Walker of Wisconsin, Sam Brownback of Kansas, and Mary Fallin of Oklahoma have all pushed back as well. And the momentum seems to be building. In May, Alabama's governor Robert Bentley thwarted his legislature when it tried to create an exchange and Chris Christie vetoed a bill passed by the New Jersey legislature to set one up. In June, after the Supreme Court handed down its decision, Louisiana Governor Bobby Jindal also joined the movement: "Absolutely, we're not implementing the exchanges. We're not implementing Obamacare."

Meanwhile, conservatives in Congress are ramping up an effort to enlist more governors in the cause. Seventy-three senators and representatives have signed a letter to the National Governors Association urging its members to stay in the fight against Obamacare: "As members of the U.S. Congress, we are dedicated to the full repeal of this government takeover of healthcare and we ask you to join us to oppose its implementation." The letter goes on to specifically implore the governors "to oppose any creation of a state health care exchange mandated under the President's discredited health care law."

The letter, whose signatories include Senators DeMint, Lee, Coburn, Graham, Vitter, Paul, Cornyn, Sessions, Rubio, Toomey and Shelby, points out a number of facts that are apparently not well understood by state politicians, including the effect the exchanges will have on their business constituents. "Resisting the implementation of exchanges is good for hiring and investment. The law's employer mandate assesses penalties -- up to $3,000 per employee -- only to businesses who don't satisfy federally-approved health insurance standards and whose employees receive 'premium assistance' through the exchanges."

In other words, a state that declines to set up an exchange will protect the businesses of that state from avoidable and job-killing penalties. This reality has apparently begun to sink in. There has been a noticeable decline in enthusiasm for exchanges among states that had begun work on them shortly after Obamacare passed. North Dakota, New Hampshire, Idaho and South Carolina, to name a few, have abandoned plans to create these insurance "marketplaces." Kaiser Health News reports that, by the end of June, "only 14 states and the District of Columbia have so far passed legislation authorizing the exchanges."

So, even after the Supreme Court's incoherent ruling that Obamacare and its much-reviled mandate are constitutional, there is still hope that the monster can be brought low. If the states simply decline to implement the insurance exchanges, the beast will die. Will Obama and his HHS minions try to avoid this by ignoring the law and try to funnel credits and subsidies through federally created exchanges? Yep. The rule of law, as they have repeatedly demonstrated, means nothing to them. But that's where the voters come in. This won't be a problem if the electorate evicts Obama from the White House in November.

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About the Author

David Catron is a health care revenue cycle expert who has spent more than twenty years working for and consulting with hospitals and medical practices. He has an MBA from the University of Georgia and blogs at Health Care BS.