Obamacare Health Exchanges Wrest States’ Authority

Published May 31, 2016

During the debate over President Obama’s health care legislation, much discussion focused on how the health insurance exchanges ordered in the bill would work in practice. The House and the Senate bills had differing versions of the exchanges, and Congress ultimately passed the Senate version, which had been labeled a “state-led” exchange in contrast to the more centralized House version.

Yet now that the health exchanges are being outlined, observers are not sure the Senate version is a victory for the states, according to Dr. Robert Moffit, a senior fellow in domestic and economic policy at the Heritage Foundation.

“Under this law, states have virtually no regulatory control at all. This is not a state-based insurance exchange at all.  It is a federal market based in states. Congress decided to regulate the markets within the states with this law,” Moffit explained.

Utah’s Exchange Endangered

Moffit points to nearly a dozen regulatory interventions listed in section 1311 of the health care legislation, including such regulations as: “the secretary of health and human resources is to by regulation establish criteria for the certification of health plans in the states.”

“The states have no independent authority to authorize plans,” Moffit said. “State officials will have to implement quality improvement strategies as determined by the federal government, and so on.”

According Moffit, states like Utah which already have a market-based exchange could lose that authority under the new plan.

“There are some lessons to learn from Massachusetts and Utah, both of which have state-based exchanges,” Moffit said. “The original health insurance exchange proposed by Romney was a good plan to promote a variety of health insurance plans. But in its implementation it became a standardized system that drove up prices. On the other hand, Utah has a market-based plan that is entirely different—but the federal exchange could knock it out.”

‘A Regulatory Behemoth’

J. P. Wieske, director of state affairs for the Council for Affordable Health Insurance, says affordability will become an issue.

“The exchanges will not truly provide Americans with affordable health insurance,” Wieske said. “We can look back to Community Health Purchasing Alliances in the 1990s, and their failure to control costs. Exchanges may exacerbate the uninsured problem unless agents are directly involved in the exchange. Agents have a financial interest in finding people—exchanges will not.”

According to Moffit, the exchange enacted by Congress is bad public policy.

“It does not facilitate the growth of anything that looks like a consumer-based market. It twists the original idea that looked more like a farmer’s market into a regulatory behemoth,” Moffit said.

Centralization Expected

Wieske foresees a centralization of the exchange over time, which could further reduce choice as bureaucrats seek to simplify the plans.

“Bureaucrats will seek to simplify, and that leads to both centralization and limits on choice. Some states will certainly seek to share exchanges, and regional exchanges will be considered by several states,” Wieske said. “Choices will be very limited, and quality ratings will be subjective. In many cases, states have shown a very strong bias toward tightly managed care, and we’re going to see that play out.”

State Pushback Urged

Moffit points out states traditionally have had the constitutional responsibility for domestic policy matters like the exchanges.

“Something like health insurance exchanges should be constitutionally left within the states’ jurisdictions,” Moffit said. “This is a federalized exchange. The idea that this is a victory for the states is an absurdity.”

Moffit maintains it’s important for states to push back and reassert their authority under the Constitution via lawsuits. He notes 21 states have joined together in an initial lawsuit challenging the law.

“What’s really at issue is whether the federal government can commandeer state officials to carry out their plans. Historically the Supreme Court hasn’t allowed that,” Moffit said. “State officials should also take every opportunity to go out and put in place their own market-based plans before 2014. State legislatures have the power to make a very strong constitutional case for their rights.”

Sarah McIntosh ([email protected]) is a constitutional scholar in Lawrence, Kansas.