The Corner

States Should Absolutely Refuse to Set Up Obamacare Exchanges

Proponents of Obamacare are making one argument that some conservatives may find appealing — namely that it is much better, from a states’ rights point of view, to set up state-based exchanges than to let the feds come in and do it themselves. This argument is absolutely wrong. Allowing your states to be deputized as instruments of federal policy is just as bad as bowing to federal commandeering of state agencies, which is unconstitutional. 

Let’s begin with the principle that the federal government is not allowed to command states or their officials to do anything. That was settled in the two modern commandeering cases, New York v. United States (1992) and Printz v. United States (1997). The federal government has gotten around that through a variety of schemes under the general category of “cooperative federalism.” The Supreme Court has generally taken a permissive attitude of these schemes, only because the states supposedly retain freedom of choice, “both in theory and in fact.” But it is increasingly clear that their choice is not really free, because they are penalized if they don’t comply with the federal program. 

This problem is clear with programs like Medicaid: The feds tax money away from the states (or they borrow it from the capital markets) and then offer to give it back to the states on condition that they comply with federal preferences. In the Obamacare decision, the Supreme Court ruled that the feds can’t present states with the “loaded gun” of losing existing Medicaid funds if they don’t comply with the Medicaid expansion requirements. But states still lose the money Obamacare “offers” for the Medicaid expansion itself, hence there is still a draconian penalty.

With the exchanges, there is also federal conditional “aid” in play, but the real penalty the states face if they don’t bow to the will of Obamacare is that the feds will come in and take over the health-care market. But it’s much easier for the feds to do that in a handful of states than for them to do it in most of the states. Feds might not be able to do it in a large number of states without asking Congress for more money or for amendments to the law. That would strengthen the position of the House of Representatives, and its GOP majority.

State governors should be under no illusions: You are not preserving one iota of state autonomy by setting up your own Obamacare exchange. On the contrary, you are letting the feds deputize you as instruments of federal policy. Let the feds set up the exchanges themselves; they can pay for them and be accountable for the results. That will impose a real limit on federal power, and provide leverage for rolling back some of Obamacare. In the meantime the message of state governments to the Department of Health and Human Services should be an absolute and unequivocal “NO.” 

Mario Loyola — Mr. Loyola is a research associate professor and the director of the Environmental Finance and Risk Management Program at Florida International University and a senior fellow at the Competitive Enterprise Institute. From 2017 to 2019 he was the associate director for regulatory reform at the White House Council on Environmental Quality.


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