Governors Should Follow Jindal’s Lead on Exchanges

Published April 1, 2011

Louisiana Gov. Bobby Jindal’s decision not to implement a health insurance exchange under the auspices of President Barack Obama’s health care law is not just a wise choice—it is a decision that should serve as an example to governors across the nation.

In rejecting the exchange, Jindal joins Florida Gov. Rick Scott (R) as one of two governors who’ve staked out a position rejecting this mandate from Washington. It’s no coincidence that Jindal and Scott are the two governors most experienced in health care policy—Jindal was a state secretary of health before he was 30, and Scott was once head of the largest private health care provider in the world.

The exchange is just a label for a regulated insurance market, one of the many creations mandated by Obama’s law. In practice, the exchanges will serve as a playground for bureaucrats and a gateway to permanent subsidies.

Some governors have taken a different course, pushing forward on forming these exchanges. Mississippi Gov. Haley Barbour is the most prominent Republican pursuing this foolish path, supporting an exchange proposal that would ensure 76 percent of the people in his state will be eligible for subsidized health care from other taxpayers.

Under Obama’s law, each state must submit its exchange plan for a federal audit and review by January 1, 2013. Each exchange must pass muster with HHS, but only after the 2012 election, when Washington’s position on health policy may have changed dramatically and HHS Secretary Kathleen Sebelius will feel free to crack down on any semblance of market principles.

Jindal recognizes that any exchange created under Obamacare will be fundamentally flawed. Beyond the vast redistributionist subsidies, these exchanges will have to pass a series of tests that are fundamentally anti-market and anti-consumer, setting the stage for an unending increase of bureaucratic regulation over time.

An exchange created outside Obamacare’s provisions could prove useful for some states, but this is not an option under the current law, and it is an unproven approach at best. Some conservatives cite Utah’s exchange as a positive example for pro-market governors to follow—but its results have been disappointing and it currently covers fewer than 3,000 people. The only true comparison is in Massachusetts, where the Commonwealth Connector has proven a massive money pit of administrative costs while doing nothing to stop the rising cost of care.

Nationally, a study recently published in Health Affairs found Obama’s system will force millions of adults and their families to bounce back and forth between Medicaid and state exchanges over periods of just a few months, dramatically increasing the administrative costs for states and ensuring coverage gaps for these unfortunate individuals.

In implementing the exchange, governors are helping Obama create a nationalized subsidy pool that creates a powerful disincentive for personal success. Under Obama’s plan, a family of four earning roughly $88,000 a year would be foolish to accept a potential raise, because they would lose out on $5,000 in annual subsidies. Any exchange created under Obamacare will include this disincentive for success.

Fortunately, the timeframe of implementation allows states to proceed with caution. The intervening election will be preceded in all likelihood by a Supreme Court decision on Obama’s law in the spring of 2012, which will have a profound effect on how the exchanges will function even if the law is upheld.

For both principled and practical reasons, governors should follow Jindal’s lead and recognize that implementing a market-based exchange is impossible under Obamacare. Governors who assume otherwise will soon regret collaborating in the installment of a costly, anti-market, and likely unconstitutional health care regime—especially when the taxpayers in their state end up paying the price for another political mistake.

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