Barbour Gets it Wrong on Obamacare Exchanges

Published February 22, 2011

While all the current Republican governors have criticized President Barack Obama’s health care policy, and nearly all have joined the Florida lawsuit that may strike down the law, it appears most of these same governors are planning to proceed with their chief responsibility under the law: setting up state-level regulated health insurance markets, called “exchanges.”

No Republican governor has been a greater fan of exchanges over the past few years than the most politically powerful of them all-Mississippi’s Haley Barbour, who is now openly considering a run for Obama’s job in 2012. Even before the president and his allies forced their ill-advised insurance overhaul through Congress, Barbour had endorsed the exchange concept for Mississippi and three times unsuccessfully supported state legislation to that effect. And in a Heartland Institute survey of all Republican governors, conducted last month to find out how many of them would support a sunset provision-which would dissolve the exchanges should Obamacare be repealed or struck down by the Supreme Court-only Barbour rejected the concept.

Yet past experience shows Barbour’s proposal would create more upheaval in the marketplace, institute a near-permanent subsidized existence for the vast majority of Mississippi families, and ignore the lessons of the disastrous failure of the exchange-based health care scheme passed by one of his likely 2012 opponents, former Massachusetts governor Mitt Romney.
Romney attempted to apply his pro-market views through a managed marketplace for insurance paired with an individual mandate. His exchange, the Commonwealth Connector, was supposed to create a more organized market. But the state’s budget was rocked by the Romney plan’s inclusion of subsidized coverage for those with incomes below 300 percent of the federal poverty level (FPL) who are not eligible for Medicaid.

State officials had expected that thousands of nonsubsidized individuals would purchase care through the exchange, but the opposite took place. As of FY 2011, more than 80 percent of those who purchased insurance in the exchange were subsidized by other taxpayers.

 In a recent radio interview, Barbour said his intention was to operate an exchange “at no cost to the taxpayers.” In Massachusetts, as the cost of providing the subsidies increased, so did the cost of the exchange-in addition to the $3.4 million in employee compensation and more than $26 million on vendors and contractors-creating a heavy burden on Massachusetts taxpayers and employers.

A study published this month in Health Affairs by two respected health policy experts-Harvard Professor Benjamin Sommers and George Washington University Professor Sara Rosenbaum-found Obama’s system will force millions of adults and their families to bounce back and forth between Medicaid (which will cover those earning less than 133 percent of FPL) and state exchanges over periods of just a few months. They estimate “more than 35 percent of adults with family incomes below 200 percent of the federal poverty level will experience a change in eligibility within six months, and 50 percent will experience a change within one year.” Within four years, fewer than one in five adults will have been continuously eligible for Medicaid, and one in three will have been continuously eligible for subsidized coverage in the exchanges.

This picture is an administrative nightmare and virtually ensures gaps in coverage for millions of Americans after the exchanges begin functioning in 2014.
What’s more, the subsidies will create a powerful disincentive for success by imposing high marginal tax rates on increases in household income. Obama’s plan is even worse than the Massachusetts one, expanding the subsidies to cover those with incomes up to 400 percent of FPL, creating a nationalized subsidy regime under which, according to the nonpartisan Washington think-tank e21, “a family of four earning just below $88,000 [400% FPL] will receive about $5,000 in annual subsidies to purchase insurance in 2016. Once that threshold is crossed, the subsidy immediately drops to zero.”

 This handout-based approach makes pursuing a raise or finding a better job a very bad thing for low- and middle-income households. It gives families a powerful disincentive to pursue advancement and risk losing their subsidies. In Mississippi, the impact will be multiplied-a full 76 percent of the state’s population is at 400 percent FPL or lower and will therefore receive subsidized care either through Medicaid or the exchanges. This will result in churning and disruption of care for many Mississippians, and it creates a regime of massive subsidies that will trap the great majority of the state’s population.
Barbour is endorsing and advancing an exchange policy that is a force-multiplier for the welfare state, putting three-quarters of Mississippians on a near-permanent government dole. Although Republicans stress their approval of hard work and talk of the importance of self-reliance and upward mobility, the data show the subsidies Romney provided, Obama expanded, and Barbour has now embraced achieve exactly the opposite effect.

Benjamin Domenech ([email protected]) is a research fellow at The Heartland Institute and managing editor of Health Care News.