The Corner

Absolutely ‘No’ to State Exchanges under Obamacare

Over on the homepage, Douglas Holtz-Eakin argues that states should set up Obamacare insurance exchanges rather than letting the federal government come in and set up the exchanges themselves. That is very simply a terrible idea, and as Ramesh points out, Holtz-Eakin doesn’t address any of the arguments against it. (Here are Michael Cannon’s arguments against it, and I weighed in on the Corner here).

Holtz-Eakin’s basic position is that states will be able to control many aspects of the exchanges and that’s better than letting the federal government set them up and control them:

States that establish their own exchanges will design them and decide how they will function. States can take steps to keep exchange costs low, respond locally to consumer questions and concerns, and make sure that consumers have many health-insurance products to choose from.

States can, and should, control their destinies by deciding how their exchanges will function, which private insurance companies can participate, and what kind of insurance coverage will be offered.

In fact, states will be able to do none of these things. The state-created exchanges must meet a myriad of conditions in order to be approved by federal regulators, and those conditions eliminate virtually all state choices as to each of those issues. And Obamacare essentially standardizes coverage under health-insurance plans. State exchanges — whether created by the federal government or by the states — will be little more than administrative offices making determinations on eligibility for standardized insurance products and the massive federal subsidies to support them. Obamacare gives states essentially zero flexibility to do any of the things that Holtz-Eakin imagines they will be able to do if they set up the exchanges themselves.

The protection against federal commandeering is one of the few shields that states retain against federal power. States give that shield away when they allow themselves to be deputized into implementing federal policy. One of the most important limits on federal power is that the feds normally have to implement and be accountable for their own policies. It is precisely that limit that the federal government escapes when it deputizes state governments into doing its bidding. That would be particularly true in this case, given the many doubts about whether the federal government can really set up the exchanges on its own. Forcing the federal government to set up the state exchanges itself could teach Congress a proper lesson in the dangers of overregulation. 

The Trojan horse in Obamacare is “cooperative federalism” schemes such as the provisions on state exchanges, and the federal funds for Medicaid expansion. Such schemes are cleverly designed to mask their insidiousness. But it is through them — and the fiction of voluntary state participation — that the federal government has been slowly taking over state governments for decades.

Under no circumstances should states contemplate setting up an Obamacare exchange. Nobody knows what will happen once the avalanche of Obamacare rules hits the American health-insurance market. State leaders are taking an enormous political risk by letting themselves be deputized into implementing a policy with such an incalculable potential for implosion. 

— Mario Loyola is director of the Center for Tenth Amendment Studies at the Texas Public Policy Foundation.


Mario Loyola — Contributing editor Mario Loyola is senior fellow and Director of the Center for Competitive Federalism at the Wisconsin Institute for Law and Liberty. He began his career in corporate ...

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