The State Exchanges- Obamacare’s Achiles Heel?

Guest blog by Tom Packer 

If President Obama wins re-election there are still ways the opponents of ‘Obamacare’ can seek to frustrate it. One of the key ways is by opposing the creation of the exchanges that are central to its functioning. These exchanges are where, when (and if) Obamacare is fully implemented from 2014 onwards an enormous amount of health insurance will be bought and sold. 

The exchanges are central to Obamacare- they are key to the standardisation and subsidization of health insurance.  The ‘individual mandate;  is a mandate forcing individuals without insurance to buy insurance on these exchanges. ‘Community rating’ regulates what prices can be charged to different individuals and groups on the exchanges.  The requirement of insurers to provide insurance offers to all, applies to offering in the exchanges. Obamacare affects healthcare policy in other ways – but the exchanges are essential to its functioning and its attempts to reshape healthcare provision in the United States and control the content of health insurance.

Crucially these exchanges are to be set up and run by the 50 US states not the US Federal Government. What the states can do with the exchanges are very restricted by the legislation. But it’s the states that pass the legislation and organise the exchanges. Given about half of US states are controlled by the Republican Party this provides an obvious way for Republicans to try and scupper the law- by refusing to set up the exchanges. If there are no exchanges then at least a large part of the countries Obamacare is crippled.

Obamacare does however empower the Federal Government to set up the exchanges if the states refuse to do so. This should also incentivise states to cooperate – so they can have some influence on the shape of the exchanges. Indeed that factor is why even some very strong opponents of the law argue that the states should not refuse to set up exchanges.

However when it comes to the exchanges there would be a number of problems using this ‘federal backup’:

The first issue is legal. The law only explicitly makes provision for subsidies for healthcare insurance purchase which are available for state exchanges – not for insurance purchase that are federal.  There is a decent sounding legal case that this was deliberate (intention matters a great deal in interpretating US statutes unlike UK ones). If the courts does rule such subsidies are illegal that would be fatal to the federal attempt to set up their own pools.

Secondly, it’s possible that the states could prevent the Federal Government founding exchanges for their states. States could ban insurance companies participating in the state.  The law requires any of these exchanges to be insurance companies that could legally provide insurance in the state. Thus a ban could reduce the number of companies that could participate in the exchange.

Finally, there are serious administrative problems in the Federal Government running them. It’s not clear if there has been enough money allocated for more than a handful of states. Some of the issues can be seen here . But there are others – for a start the fact Medicaid is run at state level means that the states have the infrastructure for running exchanges.  For example the people to do a deal with insurance companies – it’s not at all clear the federal government does.

The laws that make up Obamacare assume the states run the exchanges – it’s not at all clear the system can function (for good or ill) without the states running the exchanges. Some conservatives are suggesting using this to scupper the law- others to change its implementation almost beyond recognition.

It’s important to note these problems are not just theoretical –indeed under the administrations count, only 28 of the 50 states have started the process of setting up the exchanges as they are asked under the law. That is 22 states are actively refusing to make such an exchange. Several such as Wisconsin and Kansas have actually retuned the money used to help pay for the organisation of an exchange. American Legislative Exchange Council (ALEC) the leading group for conservative state legislators has suggested states refuse to set up the exchanges and providing guidance on how to resist their creation.

It’s quite possible that as the deadline looms states will change their behaviour. It’s possible the courts will side with the administration rather than opponents. If the exchanges are set up in some states they may prove popular and that may encourage other states to come over. A lot of these problems will go away if the Democrats regained the House of Representatives (though that’s very unlikely). There are legal arguments to defend Obamacare from the states – for example who would have standing to sue against subsidies being provided?

But there are a lot of ifs in the above paragraph. At the very least it suggests the dangers of passing very complicated legislation very quickly. Even if one entirely (or more plausibly mostly) approves of the general structure of Obamacare the fact it contains such a vulnerability to determined opposition is definitely a design flaw.

An Obama victory might prove to be just the beginning of the battle over the fate of Obamacare not the end. 

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s