Obama Exchange in Virginia Would Be Expensive Mistake

Published November 24, 2011

Is Bob McDonnell about to become Barack Obama’s favorite governor?

If polls are any indication, McDonnell is one of the most popular governors in the country. He’s gotten there by pursuing good-government policies he promised during the campaign, and by staying away for the most part from controversy or divisive issues. And by choosing to implement President Obama’s health care law, he’s about to gain another fan across the Potomac.

Outlier Among Conservative Governors

The key provision of Obama’s law that applies to the states prior to 2014 is the mandated creation of a health insurance exchange. As deployed by Mitt Romney in Massachusetts, the exchange + subsidy + mandate model created the most expensive health insurance premiums in the country. Under Obama’s law, the exchange will function as a delivery mechanism for bureaucratic regulations and costly taxpayer-funded subsidies from Washington.

For this reason, many prominent Republican governors—including Bobby Jindal in Louisiana and Rick Scott in Florida—have not just rejected Obama’s exchanges but sent the taxpayer funding back to Washington, saying “no thanks.” In fact, only 14 states have decided to implement an exchange, with most preferring instead to wait until the major legal challenges and upcoming election are decided.

Yet as one of the few Republicans moving forward to implement an exchange, McDonnell has been singled out for special prominence. In traveling the country to testify on this issue, again and again McDonnell’s name is raised by Obama’s supporters in other states as an exception that proves Republican governors ought to implement the exchanges.

McDonnell has every reason not to do this. The health care law’s status is in significant doubt, thanks in part to the efforts of Attorney General Ken Cuccinelli and other conservatives in the state. The crux of the law, its individual mandate, is currently pending review by the U.S. Supreme Court thanks to a lawsuit brought by 28 states. The latest polling data indicate the law is supported by only 38 percent of Americans, and its individual mandate is opposed by 80 percent.

Whatever the Supreme Court rules, major changes to Obama’s law are coming. This legislation is going to be reopened n the next Congress—either by Democrats seeking to correct its many flaws, or by Republicans seeking to scrap it and replace it with something new.

Obamacare Exchanges Flawed

Threats of the federal government creating an exchange without Virginia’s involvement are hollow—and Washington knows it. There is no funding authorized in the law for federal exchanges; HHS would have to find the money elsewhere and likely would have to appeal to Congress as the cost rises and more states choose not to implement. Even more significantly, due to a drafting error, Section 1401 of the law provides only for subsidies “through an Exchange established by the State under Section 1311.” This means the law does not authorize access to those subsidies—the chief reason for individuals to find the exchange appealing—under any theoretical federal exchange.

Another error was recently discovered by Professor Richard Burkhauser at Cornell, who found the exchange subsidy costs were calculated based only on the affordability of coverage for individuals, not families. This is a huge problem that must be resolved before any implementation. Either several million people won’t be eligible to get coverage they were expecting, or the exchanges are likely to cost taxpayers as much as $50 billion more than initial estimates.

Even those who supported and advocated for the exchange concept in Massachusetts and Utah have turned against the idea now that Washington’s rules and requirements are becoming known. After initial regulations were released, The Heritage Foundation’s Ed Haislmaier wrote, “a state would now have no more real control over an exchange it set up than over one HHS established.”

As the details come into focus, it becomes clear a state-level exchange is really just about the letterhead. As Louisiana health secretary Bruce Greenstein explained when his state opted against implementation, “If we were to run it, it’d have the governor’s name on top of the letterhead for every letter to businesses and families announcing the increase in premiums.” For Virginia’s next governor, McDonnell’s exchange could prove problematic indeed.

Even for those states pushing forward with the idea, exchange implementation is up against the clock because of the sheer amount of tasks remaining. One key element is forming plans on how Virginia will fund the exchange starting in 2015. In Oregon, they’ve chosen a tax on insurance premiums of up to 5 percent. Is Virginia prepared to do the same?

Oath Requires Patience

The oath McDonnell swore to uphold the constitutions of the commonwealth and the United States should give him pause before implementing Obama’s law, which may very well be found shortly to be unconstitutional, or spending one dollar earned by the labor of another toward such an end. After he leaves office, McDonnell may find he has spent the taxpayers’ money to implement a law that no longer exists. That is money the taxpayers will never get back.

As Calvin Coolidge put it, “I’ve noticed that nothing I’ve never said has hurt me.” McDonnell should realize that an Obama exchange he’s never built won’t hurt him.