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Workshop #8: "Health Insurance Exchanges: States in Charge!" ALEC S 381hAnnual Meeting Thursday, August 4, 201 1, 11:00 a.m.

- 12:15p.m. La Galerie 2 Speaker Bios Kevin Kuhlman is a Manager at the National Federation of Independent Business focusing his advocacy efforts on healthcare issues with Members of Congress. NFIB is the nation's leading small business organization with over 350,000 members. For years, the rise in healthcare costs has been a top concern of NFIB members.

Prior to his tenure at NFIB, Kuhlman handled healthcare, labor, education and small business issues for Congressman Peter Roskam from the western suburbs of Chicago. He started his career on the Hill working as support and research staff for the Committee on Ways and Means serving under Chairman Bill Thomas, Ranking Member Jim McCrery, and then-Ranking Memberlnow-Chairman Dave Camp.
Cheryl S. Smith is a Director at Leavitt Partners and helps guide the firm's health insurance exchange practice. Smith played a central role in developing and implementing Utah's Health Insurance Exchange, one of only two functioning state health insurance exchanges in the country.

Prior to joining Leavitt Partners, Smith worked in the Utah Governor's Office of Economic Development as the Director of the Utah Health Exchange office. Her leadership and expertise drew national attention as Utah's health insurance exchange was recognized in the Washington Post, The Boston Globe, The Wall Street Journal, Forbes.com, and BusinessWeek.com. Cheryl helped coordinate projects and ensured adequate administrative and financial controls, quality, and procedural efficiencies. She also managed the relationships between various stakeholders, including the business community, industry representatives, hospitals and non-hospital providers, advocates and other interest groups.

In other work capacities, Srni.thwas a Visiting Health Policy Fellow at The Heritage Foundation in Washington, D.C. While at Heritage she focused her research, analysis, and writing on the State Children's Health Insurance Program (SCHIP), Medicare drug pricing, and state health system reform. Smith has a B.A. in Political Science and a Master of Public Policy (with an emphasis in health policy), both fiom Brigham Young University.
Rep. Linda Upmeyer represents Iowa's 12" District and currently serves as Iowa's House Majority Leader. She was first elected in 2002. Upmeyer is a cardiology nurse practitioner.

As a legislator, she serves on the Health and Human Services Task Force for the American Legislative Exchange Council, and currently serves on their Board of Directors. She also serves on the Executive Committee of the Midwest Conference of State Governments. Upmeyer currently serves on the Administration and Rules Committee and has formerly served on the Human Resources, Natural Resources, and Economic Growth committees. Linda has also served on the Leadership Council and International Relations committees. She is a former trustee for North Iowa Area C:ommunity College and a former board member of both .the National and Iowa Association of Community College Trustees. Upmeyer attended the University of Iowa, where she received her B.S. in Nursing. She received her Master's in Nursing fiom Drake University.

Should Virginia Create a Health Insurance Exchange? Remarks by Michael F. Cannon Director of Health Policy Studies Cato institutei Before the Joint Commission on Health Care Richmond, Virginia June 14,2011 Good morning, members of the Virginia Joint Coilmission on Health Care. I am very pleased to be with you today. My name is Michael F. Cannon. I am the director of health policy studies at the Cato Institute, a libertarian think tank in Washington, D.C.. The mission of the Cato Institute is to promote the principles of individual liberty, limited government, free markets, and peace. I am also a 30-year resident of the Commonwealth of Virginia and a product of Virginia public schools, from elementary through graduate school. Background The most important health policy issue facing the Commonwealth is the fate of the health care law that President Barack Obama signed last year. That law is already increasing the cost of health insurance by as much as 30 percent in some cases, and will cause even greater premium increases in the years to come. When that law takes full effect in 2014, it will set in motion several important changes. States are already struggling to pay for their current Medicaid programs. Starting in 2014, this law will add to those burdens with enormous unfunded mandates. The law's so-called "individual mandate" will compel nearly all Americans to purchase a nominally private but government-designed health insurance policy. Those who fail to coinply will face penalties including fines andlor iinprisoml~ent.Finally, the law's health insurance "Exchanges" are scheduled to become operational in 2014. These new government bureaucracies would enforce the law's regulations that will drive up health insurance premiums, and would distribute hundreds of billions of taxpayer dollars to private health insurance companies, thereby driving up the national debt.

The Health Care Law's Future Is in Doubt Supporters introduced the first draft of President Obama's health care law in Congress in June 2009. A bipartisan majority or plurality of the American people have consistently opposed it ever since. A mere 38 percent of the public supports the law. Opposition is highest among likely voters. Officials representing 28 states and both political parties have filed suit to ovei-turn the law. One of the two major political parties has committed itself to wholesale repeal.

A bipartisan majority of the General Assembly enacted legislation to block the ellforcement of any such law in Virginia. The Conlmonwealth is suing the federal government (so far successfully) to have the individual mandate de:claredunconstitutional, and has further asked the courts to strike down the entire act. In a sim.ilar case filed by 26 states and many private plaintiffs, a federal judge has struck down the entire law. These and other constitutional challenges are currently before federal appellate court!;. Legal experts predict the U.S. Supreme Court will ultimately rule on the law's constitutionalit:ysometime in the summer of 2012. Should Virginia Create a Health Insurance Exchange? Against this backdrop, the most immediate question facing state officials is whether to y create a health insurance Exchange. In the remainder of ~ n remarks, I will explain why, whether one opposes or supports this law, the responsible course is not to create an Exchange. I am continually surprised by how many people around the country mistakenly believe the new law requires states to create an Exchange. To be clear: Virginia is under no obligation to create a health insurance Exchange. The authors of the health care law knew full well that such a requirement would be unconstitutional. Instead, the law asks states to do the heavy lifting of creating these bureaucracies, offers thein considerable sums of money, and as a fallback position allows the federal government to create an Exchange if a state declines to do so. For state officials who have taken the position that the federal health care law is unconstitutional, this should be an easy decision. Virginia officials, like state officials nationwide, take an oath to protect not just their ow11 state's Constitution, but also the Constitution of the United States. They are therefore oath-bound to use all legal means to block a law that they believe violates the U.S. Constitution. The same duty, then, that obliges them to sue to overturn the health care law also obliges them not to implement it. To implement this health care law, such as by creating an Exchange, would be to violate their oath of office. Regardless of whether one supports or opposes this law, however, the simplest and most powerful reason not to create an Exchange is this: there is no money. Neither the Commonwealth nor the federal government has money to waste on new government agencies that might be repealed or overturned tomorrow. Every dollar that Virginia spends on an Exchange is a dollar it cannot spend on roads, education, or police. The Exchange planning grant that Virginia has already received, and any federal additional funds the Commonwealth may receive, are adding to the nation's debt burden and bringing the United States closer to a Greek-style debt crisis. The fiscally responsible option, which many states have exercised, is to send that money back to Washington and to refuse any additional funds. Exchange advocates counter that Virginia must act now to ensure local control of Virginia's health insurance market. This argument has even persuaded some who oppose the law that they should create an Exchange as a way of hedging their bets in the event the law remains on the books. Yet this strategy rests on two faulty assumptions. The first is that creating an Exchange will give Virginia officials more control over Virginia's health insurance market. A recent Obama administration missive explains that the

new law "authorizes [the federal governmeilt] to ensure that States with Exchanges are substantially enforcing the Federal standards.. .and to set up Exchanges in States that elect not to do so or are not substantially ei.zforcii7g relatedyrovisions." (Eillphasis added.) In other words, the promise of local control is a mirage. The law allows the federal government to commandeer any Exchange that falls short of full compliance with federal dictates. Creating its own Exchange will not allow Virginia to control its o w l health insurance markets. In the end, there is no such thing as a state-run Exchange. The second faulty assumption is that creating an Exchange will not affect whether the law remains on the books. For several reasons, creating an Exchange would entrench the law and make it less likely to be repealed or overturned. First, creating an Exchange lends the appearance of legitimacy to the law. The Obama administration heralds the creation of each new Exchange as proof that the law is gaining acceptance, and loudly interprets states accepting the federal grants available under the law in the same manner. Second, creating an Exchange undermines the credibility of state officials who are seeking to overturn the law. When these officials declare the law unconstitutional yet implement it and accept the funding it offers, the media are correct to diagnose hypocrisy. Such duplicity is already undermining the lawsuits seeking to overturn the law. In his most recent ruling, federal judge Roger Vinson wrote that the fact that some of the plaintiff states are implementing the law undercut their o w l argument that he should halt all implementation. Third, to create an Exchange is to create a taxpayer-funded lobbyiilg group dedicated to fighting repeal. An Exchange's employees would owe their power and their paychecks to this law. Naturally, they would join the fight to protect it. Fourth, Congress and the courts are less likely to eliminate actual government bureaucracies that have assembled dedicated constituencies than they are to eliiniilate theoretical ones. The more disruptive repeal would be, the less likely it becomes. Fifth, if these bureaucracies begin handing out billions of taxpayer dollars in 2014, the private insurance companies who receive those subsidies will plow much of the nloney back into fighting repeal. The Obama administration is offering financial inducements to states to create Excl~anges because the administration knows that every new Exchange helps them shield the law from Congress, the courts, and the American people. For opponents of the law, creating an Exchange is less a hedging-your-bets strategy than a sabotaging-your bets strategy. Some opponents of the law, most notably the conservative Heritage Foundation, recoinmend that states create "market-friendly" (i.e., non-compliant) Exchanges that offer an "alternative vision to ObamaCare." They will ultimately find this strategy self-defeating. As Thomas Jefferson explained more than 200 years ago: "The natural progress of things is for

liberty to yield, and govemnent to gain ground." Former Massachusetts Gov. Mitt Rornney (R) proposed a "market-friendly" health insurance Exchange in 2006. By the time it returned to his desk, it had become the very market-unfriendly plan on which Coilgress modeled President Obama's health care law. The "market-friendly" Exchange that former Utah Gov. Jim Huntsman (R) created in 2008 has also become increasingly less market-friendly. When Utah politicians saw that health insurance was more expensive inside their Exchange than on the open market, they imposed a series of taxes on consulners outside of the Exchange to prop up the health plans inside it. In the process, Utah unwittingly put in place the infrastructure for a federal Exchange: if Utah's Exchange fails to comply with the health care law in 2014, the federal government will coinmandeer it or brush it aside. There is simply no reason for Virginia to crea1:e any kind of Exchange. A top Utah function already exists in the private sector." Exchange official says, "Nearly every Excl~ange because they see it as a vehicle for enabling Heritage Foundatioil scholars want an Excl~ange workers to purchase their own health plan using tax-free dollars from their employers. A Minneapolis company called Bloom Health is already giving workers that freedom, without any new government bureaucracies or regulations. Finally, I encourage the Comnission to be mindful of conflicts of interest surrounding the issue of health insurance Exchanges. The interests of those asking the legislature to create an Exchange may not line up with the interests of consumers. For instance, private health insurance companies are lobbying state legislatures nationwide to create health insurance Exchanges. This activism may be related to the fact that Exchanges are necessary for them to tap hundreds of insurance regulators and state health care billions of dollars of taxpayer subsidies. Sin~ilarly, officials across the country have urged their govemol-s and legislatures to create an Exchange, which may stem from a fear that a federally administered Exchange would render them obsolete. cannot save these state officials from obsolescence. Only Unfortunately, a state-run Excl~ange repealing or overturning the health care law can do that.

Conclusion
Creating an Exchange does not make the best of a bad situation. It makes the bad situation. The most responsible course for Virginia is to refuse to create an Exchange. Many governors, including Florida's Rick Scott (R) and Louisiana's Bobby Jindal (R) have already done so. Next, Virginia should send back to Washington whatever funds it llas received under this law, as Oklahoma, Wisconsin, Florida, and other states have done. Virginia should send that money back with a message that if Congress is looking to cut federal spending, it should start with laws that federal courts have declared unconstitutional. At a minimum, Virginia should defer the question of creating an Exchange until the courts dispose of the constitutional challenges brought against this law. Legal scholars expect the U.S. Supreme Court to rule on this law in the summer of 2012. If the Court upholds the law, Virginia would have time to submit an Exchange plan to WaslIington by the 20 13 deadline. If the Court voids the law, Virginia will be glad she waited.

In the meantime, there are other steps Virgiilia can take to make health insurance and medical care more affordable to consumers. First, the General Assembly can permit Virgiilia employers and coilsuiners to purchase health insurance licensed by other states. Wyoming, Maine, and Georgia have already given their residents this freedom. Enabling Virginians to purchase health insurance across state lines would expand choice and competition, and would reduce premiums by letting consumers avoid unwanted regulatory costs. As important, granting Virginians this freedom would not require any new government spending or the creation of any new govemnent bureaucracies. Such legislation has been introduced in the General Assembly in the past, though it has been opposed by domestic insurers who prefer what they call a "level playing field" - i.e., where government and blocks con~petition Virginians have fewer choices. Second, the General Assembly can make basic medical care inore affordable for the poor by broadening the scopes of practice of mid-level clinicians such as nurse practitioners and physician assistants. One promising approach, similar to letting Virginians purchase health insurance across state lines, is to let clinicians licensed by other states practice in Virginia under the terms of their license but subject to Virginia's malpractice laws. Reforms such as these would spur the growth of retail clinics and other innovations that bring quality medical care within reach for more low-income Virginians. Third, the General Assembly can reduce unnecessary medical malpractice costs by giving patients and doctors the freedoin to choose reforms such as caps on non-economic damages. In contrast to mandatory caps on damages, this approach would make medical malpractice refoi-nl available to those who need it most, but still allow others to enjoy broader malpractice protections. Again, I am very pleased to be with you today, and I look forward to any questions you may have.

The Cato Institute is a nonpartisan, nonprofit, tax-exempt educational foundation organized under Section 501(c) 3 of the Internal Revenue Code. In order to maintain its independence, the Cato Institute accepts no govemnent funding. Cato receives approximately 82 percent of its funding from individuals, 10 percent from foundations, 1 percent from corporations, and the remainder the sale of publications. Cato's fiscal-year 2009 revenues were over $20 million. Cato has approximately 105 full-tune employees, 75 adjunct scholars, and 23 fellows, plus interns.

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California

< 2010: Exchange Jan


establrshment legtslation rntroduced (before PPACA)

Sept 2010: Gov. Schwarzenegger signs exchange legislation

l ~ ,
Dec 2010: Apporntees to Health Benefrt Exchange Board named

Jan 2011: Exchange laws go Into effect

I
Apr 2011: First meetlng of Exchange Board (flfth board member not yet named)

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Georgia

<

I
Feb 2011: Ins. Comm. Hudgens announces plan to create an exchange

Early Mar 2011: Exchange establishment legislat~on introduced

Mid-Mar 2011: Gov. Deal shelves legislation due to Tea Party opposition

Early Mar 2011: Tea Party opposition

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April 2011: Gov. Deal signs Interstate Health Care Compact legislation

June 2011: Gov. Deal signs executive order creating an exchange study panel

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Idaho

Mississippi

<

Apr 2010: Act is approved by Gov. Barbour

Mar 2010: Legislature passes act to create exchange study committee

Mar 2011: Legislation fails

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May 2011: MS Comprehensive Health Insurance Risk Pool Association Board votes to establish and operate the MS Health Insurance Exchange

February 2011: Multiple exchange establishment bills introduced in legislature

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Prices Health Care Equitable Reimbursement act


Jane M. Orient, M.D. Assn of American Physicians and Surgeons (AAPS) www.aapsonline.org ALEC 201 1, New Orleans Medibid-agreed price: $6,500 Hospital chargemaster: ??

Prices
Free-market: $6,500 Chargemaster: $21,336.58=3.3~$6,500 Insurance: f(c,n,x) = ? $5,500 Marginal: 10 staff hrs, drugs, expendables,

Who pays chargemaster rate?


Nobody? Rich, uninsured Government (disproportionate share) 3 "loss" 3 tax-exempt status Percentage paid as "coinsurance," especially for out-of-network patients Patients with high-deductible insurance and no "re-pricing"

? $3,000

What is the purpose of the chargemaster rate? "Medical care costs too much."
Wall Street Journal ad J Patrick Rooney

Insurance costs so much because medical care costs so much. Medical care costs so much because of "insurance" or thirdparty payment.

Some free-market prices:


ACL repair, $7,040 Open rotator cuff repair, $6,160 Bunion, $4,125 Inguinal hernia, $2,860 Lumbar laminectomy, $9,900 Cochlear implant, $8,800 www.surgerycenterok.com

"If I had known that a C-section only costs $5,000, I wouldn't have spent so much money on insurance!" --response to revelation about hospital's fixed price arrangements for obstetrical services to Mexican nationals

Medicaid spending
Kaiser Family Foundation statehealthfacts.org Purpose Managed care and health plans Physicians, lab, xray In-patient hospital Pharmaceuticals

AZ/U.S.
83% 35%
0.7%/ 6%

4%/23%
0.1%/7%

Managed care efficiency?


Revenues: $651.8 million Spent on "healthcare services": $554.3 mil MLR: 85% Amount not spent on healthcare: $97.5 mil = 10,000~ $10,00Osurgeries > 1,000 BMWs Care lStHeath Plan, Arizona Health Care Cost Containment System

Characteristics of a free market?


Discrimination on the basis of race, sex, age, ethnicity-or health plan Government funding Protection money Secret agreements Hidden prices ("nontransparency")

Congress needs to provide states Medicaid flexibility


by Congresswoman Cathy McMorris Rodgers and Jason Mercier February 15,2011
en President Obama signed the unpopular Patient Protection and Affordable Care Act last year, he made many promises, including that the law would increase health care access and lower costs. As states begin the process of devising their annual budgets, it's more clear than ever that those promises aren't being kept - especially in our home state of Washington. Washington State officials last year debated opting-out of the federal Medicaid program so they could preserve flexibility in providing health care services to needy families. Currently Washington faces a projected $5 billion state budget shortfall. The alternative to opting-out of Medicaid is the potential elimination of all state-only health care programs such as the Basic Health Plan, prescription drug coverage, and the Disability Lifeline program. The new federal health care law imposes a Medicaid Maintenance of Eligibility restriction on the states that prohibits local elected officials from making reductions. This restriction, combined with looming state budget deficits, means legislators and governors are faced with the painful decision of funding stateonly health care programs or providing matching funds for federal Medicaid dollars - they can't do both. Already health officials in Nevada and Wyoming have drafted white papers discussing the possibility of opting-out of Medicaid to preserve more budget flexibility. Similar conversations are occurring across the country in blue states like Washington and red states like Texas. This problem transcends which party controls a

Wh

state's budget and demands bi-partisan Congressional support for Medicaid reform. Though a state actually opting-out of Medicaid remains unlikely, the fact that it is openly being discussed signifies the need for states to have more flexibility in the Medicaid program. Otherwise state health care spending will be limited to administering the federal Medicaid program at the expense of state-directed priorities. While the new Republican majority in the House will not provide states another federal bailout, working with the Senate, Congress can reform the Medicaid program to provide states the discretion to make local health care decisions. We are working on a proposal to do just this. Unless states are provided more flexibility over Medicaid spending they will be forced to either opt-out of the program or eliminate state-only healthcare priorities. A better strategy would be for Congress to transform the current categorically restricted Medicaid program, which is dictated by D.C. priorities, into an indexed block grant program that would allow each state to design a comprehensive state-based health care system that meets the unique needs and priorities of their citizens while protecting the most vulnerable. Many states are already asking the federal government for this type of Medicaid tlexibility, including legislators here in Washington. Last month Senators Linda Evans Parlette, Joe Zarelli, Randi Becker and Minority Leader Mike

Hewitt introduced SB 5596 to require the Department of Social and Health Services to request an indexed Medicaid block grant waiver to "allow the state to operate as a laboratory of innovation for bending the cost curve, preserving the safety net, and improving the management of care for low-income populations." To help determine what indexed growth factor should be used for a Medicaid block grant program, governors and state Medicaid Directors across the country should work with Congress to design a fiscal growth factor that would meet state needs. This type of reform would also help Congress with its deficit reduction efforts since Medicaid costs would be more predictable. Congress should reform Medicaid to avoid radical disruptions to state health care networks. Failure to d o so will result in states merely becoming passive administrators of the federal Medicaid program while state-only health care programs are eliminated to balance budgets. Reforming Medicaid into an indexed block grant that provides state spending flexibility will instead facilitate fifty laboratories of democracy working to identify innovative health care reforms to provide a meaningful safety net for the most vulnerable in our society.

Congresswoman Cathy McMorris Rodgers represents Washington's Fifth Congressional District and serves as Vice Chair of the House Republican Conference. Jason Mercier is Director ofthe Centerfor Government Reform at the Washington Policy Center based in Seattle.

THE WAlL STREET JOURNAL.


OPINION

JUNE 7, 2011

ObamaCare's Next Constitutional Challenge


The Medicaidprovision ofthe health law spells the death knell for competition among the states.
By RICHARD A. EPSTEIN AND MARIO LOYOLA The constitutional battle over ObamaCare has largely focused on the constitutionality of the individual mandate. Namely, does forcing individuals to buy health insurance violate the commerce clause? But as the Eleventh Circuit Court of Appeals prepares to hear Florida v. United States, a second issue is of equal importance: Was District Court Judge Roger Vmson correct to rule that the federal government can force states to expand their Medicaid programs as a precondition for continuing to receive matching federal hnds for the program? Under the Patient Protection and Affordable Care Act, states have a choice: Expand their Medicaid rolls or bear the full cost of caring for their state's current Medicaid population, while continuing to subsidize the Medicaid programs of other states. The constitutional danger of such a scheme has long been recognized. In 1936, the Supreme Court warned in US. v. Butler that if conditional federal grants were not restrained, the taxing and spending power "could become the instrument for the total subversion of the governmental powers reserved to the individual states." And yet the government is comparing this Medicaid requirement to a "voluntary" contract. Does anyone believe that a person is entitled "voluntarily" to continue his joumey so long as he pays for all poor people who use the roads? The government's action is plainly coercive because it necessarily conditions the exercise of one right upon the conscious surrender of a second. Unfortunately, the Supreme Court's decision in Soutlz Dakota v. Dole (1987) confused matters. Dole let Congress condition 5% of federal highway hnds on the states raising their drinking age to 21. The Court argued that this modest penalty was mere persuasiownot coercion-but cautioned that "in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which 'pressure tums into compulsioi~."' The question, then, is where that point is. Judge Vinsoil denied that any such point exists because the federal -3 courts have routinely ignored the Court's warning in Dole - A y approving virtually every conditional federal grant program-no matter how intrusive.
Laugh~ng Stock/Corb~s

The reason why the analysis in Dole has failed to offer any protection for state autonomy is that it is fundamentally wrong to think of coercion as a matter of degree. The government always engages in coercion when it taxes away inoney from the citizens of several states, only to return it to those states that abide by certain conditions. The Medicaid provision of ObamaCare spells the death knell to competition among the states. States cannot function as "laboratories of democracyy'-as the 10th Amendment intended-if the federal government can use its power to tax and spend to bludgeon all states into conformity.
continued on back

In New York v. United States (1992), the Supreme Court ruled that the federal government cannot require state governments to take ownership of nuclear waste that citizens could not otherwise dispose of safely. And in Printz v. Unitedstates (1997), the Court held that the U.S. could not co~npel local law enforcement officers to conduct background checks on prospective handgun owners without their consent, because such commandeering of state public officials is contrary to the federal structure of our Constitution.

In neither New York nor Printz did the result turn on the "level" of coercio~~, should it do so in the current nor case. The constant backdrop of the federal taxing power makes a mockery of the claim that state participation under ObamaCare is voluntary. The only way to prevent this grave intrusion on state autonomy is to strike down the Medicaid provisions of the health-reform law.
Mr. Epstein is a professor of lmv at New York University and a seniorfellow at the Hoover Institution. Mr. Loyola is director of the Centerfor TenthAmendment Studies at the Exas Public Policy Foundation, whichfiled an amicus brief in Florida v. United States.

Obamacare Can't Be Fixed, and Now Is the Time to Dismantle It by Michael F. Cannon Michael F. Cannon is director of health policy studies at .the Cato Institute and coauthor of Healthy Competition: What's Holding Back Health Care and How to Free It. Added to cato.org on March 9,20 11

This article appeared in the March 21, 201 1 issue o National Review. f
A t the 20 11 Conservative Political Action Conference, Indiana governor Mitch Daniels observed that to turn the United States into a European-style social democracy, the Left "need only play good defense. The federal spending coinrnitments now in place will bring about the leviathan state they have always sought. The healthcare travesty now on the books will engulf private markets and produce a single-payer system or its equivalent, and it won't take long to happen." We even know the drop-dead date: Jan. 1,2014. That's when Obamacare takes full effect, and it's less than three years away. On that date, the feds will compel you to purchase health coverage, dictate the content of that health insurance, slap government price controls on it, and begin handing out hundreds of billions of dollars in new entitlement spending. The relatively minor provisions of the law that have taken effect to date are already killing jobs, increasing preiniuins and taxes, reducing take-home pay, causing private- insurance markets to collapse, and throwing Americans out of their health plans. Yet today's cost increases and other dislocations will look like the good old days compared with what Americans will suffer when if -they allow Obamacare to take full effect. The noilpartisan Congressional Budget Office projects, for exainple, that Obamacare will permanently eliminate 800,000 jobs by 2021. That's not to mention any temporary job losses. Even more ominous: Obainacare is already creating constituencies dedicated to its preservation. For moiiths, the Obama administration has been writing checks to states, seniors, and employers, and trumpeting the implicit subsidies that flow from the law's price controls, all with the goal of protecting Obamacare by making more and more people dependent on it. Such efforts have so far failed to make the law popular. Polls still show that a majority or plurality of the public opposes the law, as has been the case since the fxst draft of Obamacare was introduced in Congress in June 2009. The latest Rasmussen poll fmds that 84 percent of Republicans and 59 percent of independents favor repeal. Not even the $250 checks that the legislation is sending seniors have won thein over: The latest Kaiser Family Foundation poll shows that their opposition is now higher than at any point since enactment (59 percent). That will change if Obamacare is still on the books in 2014. Tens of millions of Americans will begin to receive thousands of dollars each in government subsidies, whether tlu-ough an expanded Medicaid program or Obainacare's new health insurance "exchanges." Medicare's chief actuaiy predicts that these state-based exchanges will slowly crowd out other private coverage (such as through employers) until "essentially all" Americans get their health insurance through them. Just as important, whatever private insurance coinpallies are still standing in 2014 will begin enrolling tens of millions of customers

through the saine channels. With boots on the ground and deep pockets, these two constituei~cies will quash any effort to eliminate their new subsidies. Public opinion may even turn in favor of the law not because Obainacare works, but because tens of millions of people will be dependent on it for their health insurance. What this means is that opponents may never have inore power to chart Obainacare's course than they do right now. In particular, the decisions that federal and state officials make today could determine whether the 2012 elections produce a Congress and president who are willing to repeal the law. In other words, the iron is hot. Congressional Republicans appear to g a s p the weight of this moment. They are doing everything they can to ensure that Obamacare never sees the year 2014: forcing votes on repealing and de-funding the law, and undertaking a two-year campaign to expose its harmful effects. Unfortunately, their efforts are being undercut by their fiiends back home. Rather than beat their plowshares into swords, Obamacare opponents in inost state capitols are laying the bureaucratic foundations for the law's new entitlement spending and lending it legitimacy by accepting its debt-fmanced federal grants. Secretary of Health and Human Seivices Kathleen Sebelius each froin the federal government to boasts that 48 states have already accepted at least $1 rr~illioil help them plan their exchanges. It's not just Democrats who have taken the money. Wisc:onsin governor Scott Walker has won plaudits for staring down government-worker unions and returning a $637,000 Obamacare grant. Yet Walker accepted a $38 million Obamacare grant to help get Wisconsin's exchange up and running. Kansas governor Sain Brownback voted against Obainacare when he was in the U.S. Senate. Yet he has accepted a $32 million Obainacare grant and is allowing his Republican insurance coinmissioner, Sandy Praeger, to forge ahead with creating a Kansas exchange. Wisconsin and Kansas are two of the 26 plaintiff states in Florida v. HHS, case in which a federal the court ruled that Obainacare is unconstitutional and void. In response to that ruling, Walker's attorney general, J. B. Van Hollen, declared the law "dead" in Wisconsin, a reality no less true in the other plaintiff states. Yet Brownback and Walker accepted their $30 inillion -plus Obamacare grants after the ruling. Soine governors, including Idaho Republican Butch Otter, have said that the fact that they are accepting Obamacare grants and holding exchange-planning meetings does not mean they have decided to create an exchange. But taking the money lends legitimacy to a law that Otter himself is suing to overturn as unconstitutional. To date, only two governors -Florida's Rick Scott and Alaska's Sean Parnell, both Republicans -have refused to accept any Obamacare inoney or create any Obamacare bureaucracies. While Obamacare takes a beating in Congress, the federal courts, and the court of public opinion, why are so many opponents acting as its agents? Soine state officials say they are hedging their bets. "Some legislators think the state version of the exchange is their only option, even if they don't want it," explains Twila Brase, president of the Minnesota based Citizens' Council for Health Freedom. "They think the federal exchange is an absolute certainty and that they'll have more power over it if it's a state-built exchange." But that rationale rests on the false premise that Obamacare can be fured, or its damage mitigated, if it is implemented the right way.

i Obainacare confronts states with a veiled Hobson's choice. The law provides that in 2014, each state
will have its own health-insurance exchange where individuals who don't have job-based coverage inay purchase a federally regulated and subsidized (but ''private") health plan. States that develop and obtain federal approval of an exchange blueprint by 20 13 inay adininister their own exchanges in 2014. In states that choose not to create an exchange, HHS will step in to create and administer one. The veil is the assurance that states will be able to tailor their exchanges. Sebelius audaciously clahns that Obamacare "is built on the belief that states understand their health-insurance markets better than anyone else. As such, it puts the states in the driver's seat to lead the process." Other supporters have sought to frighten Republican governors into implementing the law by holding out the nightinare scenario of the federal government's administering the exchanges. Who administers the exchanges, however, is unimportant. What counts is who writes the rules that govern them. Those rules will be written entirely in Washington. Unfortunately, many Republican governors have taken the bait. "We cannot let the insurance exchange default to federal control," says a spokesman for Ohio governor John Kasich, "so we are moving forward with the planning that is required to make the exchange work best for Ohio." A spokesman for Georgia governor Nathan Deal put it more forcefully: "The state cannot halt midstream, because that would be irresponsible. It would put us too far behind if our litigation is not successful in the end." But federal control is not just the exchanges' default setting - it's the only setting.

LII a February 24 letter to the nation's governors, Sebelius extolled the four types of flexibility that Obamacare allows states in shaping their exchanges: 1) States can restrict insurers from participating; 2) states can add even inore benefit mandates than Obamacare requires; 3) come 2017, states can opt out of Obamacare by creating a single-payer health-care system; and 4) states can adopt their own "governance structure" and "operational philosophy." In sum, states can impose harsher regulations than Obamacare requires and can choose who sits on their exchange's board. That's it. The only additional latitude the Obama adininistration has offered came when President Obaina told the National Governors Association that he is open to letting them launch single-payer systems in 2014 rather than 2017. (Vermont governor Peter Shumlin is champing at the bit.) States already had all these powers, of course, and would continue to possess them if Obainacare were repealed tomorrow. What states need, and Obamacare denies them, is the power to remove the law's harmful regulations, which will block market competition and cost-saving innovations.
Running their own exchanges won't empower states to prevent both the most economical and the most comprehensive health plans from disappearing froin their markets. Affordable plans will disappear because Obamacare requires all purchasers to buy whatever coverage Sebelius mandates as "essential," a definition that will grow ever broader, as sucll defmitions always do. The law's price controls will require insurers to charge everyone of a given age the same premium, regardless of whether an actuarially fair premium might be $5,000 or $50,000. Even state-run exchanges would see comprehensive health plans crumble under the weight of too many patients who cost $50,000 but pay far less. Nor can state-run exchanges prevent other dimensions of quality from eroding. Even in staterun exchanges, the sickest patients would struggle to get their clahns paid by insurers who are trying to avoid, mistreat, and dump them, because that is what Obamacare's price controls reward. States that run their own exchanges will likewise be powerless to prevent HHS froin loading healthsavings-account (HSA) plans down with inandated benefits. They will have no power to save HSAs

froin Obamacare's "medical-loss ratio" and "minimum actuarial value" requireinents, both of which threaten to destroy health savings accounts. Twenty-one Republican governors recently told Sebelius that she should prepare to administer their states' exchanges unless HHS 1) provides them "coinplete flexibility" in running their exchanges; 2) waives all of Obamacare's benefit mandates; 3) waives the provisions that threaten HSAs; and 4) gives states "blanket discretion" to move non-disabled Medicaid eilrollees into the exchanges. There is zero chance that Sebelius will accede, because she cannot. G:rantingthe first three demands would mean repealing most of Obainacare's central requirements: the price controls on health insurance, the individual mandate, and the medical-loss-ratio requirements, for starters. That would require an act of Congress. Obainacare vests vast discretionary power in .the HHS secretary, but not this much. And even that act of Congress would not fix Obamacare. The new entitlement spending, in Medicaid and the exchanges, would begin flowing in 2014 as scheduled. The law would still impose an enormous unfunded Medicaid mandate on states. My colleague Jagadeesh Gokhale estimates that new York State would get hit the hardest, being forced to shell out an ad.ditional$66 billion over the first ten years. Indeed, the "blanket discretion" these governors seek to inove Medicaid enrollees into the exchanges, aside from being a fairly shameless ploy to shift the cost of their Medicaid prograins to taxpayers in other states, would entrench Obamacare by making millions of current Medicaid enrollees dependent on the exchange subdies. Sebelius's official response to the governors was, effectively, "drop dead." Having received this answer, the 21 governors should stick to their guns and join Scott and Parnell by refusing any additional Obainacare finds, returning the funds they have heretofore received, and declaring that they will not create any Obamacare exchanges. Brase argues that such a move might doom the exchanges because HHS likely cannot create that inany without the help of state officials. "The future is uncertain about a federal exchange," she explains. "Why should we do the feds' work when they might never achieve the exchange without our help?" There is simply no rationale for implementing an exchange that stands up to scrutiny. Some governors have indulged the fantasy that they call create a better excl~ange, that does not comply with one Obamacare. It's an audacious stratagem. But ask yourself: What insurance company will participate in an exchange that flouts federal law? Before you answer, reinember that the federal goveiment is some insurance companies' largest customer. And remember that every new bureaucracy is itself a constituency for more government. It would be better that states not create exchanges at all. "Anytime you can keep a government from setting up any bureaucracy of any sort," writes Charlie .Arlinghausof New Hampshire's free-market Josiah Bartlett Center for Public Policy, "it is a victory." There is no good way, or even a less-bad way, for states or the feds to implement Obamacare's exchanges or other central elements. Permitted to stand, Obainacare will reduce Americans' incomes, harm their health, and decrease their freedom. The only way to fix it is to demolish it. "Collaboration in setting up exchanges only encourages the corporate interests who will profit from them and sends a signal that 'repeal and replace' is not serious," writes the Pacific Research Institute's John R. Graham. Rather than spend any t h e , money, or energy creating constituencies for Obamacare, Graham mites,

"we have to discourage implementation, totally and immediately." In The Bridge on the River Kwai, the British POW Coloilel Nicholson recognizes that his collaboration with his Japanese captors was madness, and gives his life to undo it. State lawmakers need to have a similar epiphany about Obamacare, before things reach the point where correcting their inistakes will cost them their political lives. Unlike soldiers, politicians aren't into self-sacrifice.

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