No State Obamacare Exchange Still Best Choice

Governor's "partnership exchange" could be a blessing in disguise

Gov. Rick Snyder is negotiating with the federal Department of Health and Human Services over the details of an Obamacare “partnership exchange,” which may be a blessing in disguise for those who oppose the law.

“Exchanges” are the mechanism by which Obamacare’s trillions of dollars in subsidies will be administered, and one operated by either the state or the federal government must exist in every state by 2014 for the law to work.

For several reasons, a partnership exchange is less bad than a state exchange (there are no good choices for the state under this law). It also mitigates the risks of an unmoderated federal exchange, and so eases the pressure on legislators to create what would be a large state-level bureaucracy managing intricate details related to individual residents’ most personally sensitive area of concern. It will also play a role in executing the law's assaults on religious liberty.

The “partnership” model appeared last year as a federal response to the reluctance of many governors and legislatures to create a state-run exchange. The term does not exist in the “Affordable Care Act,” and for purposes of that law the entity would be considered a federal exchange, not a state one. This could have important consequences going forward.

Among those is the potential under an Oklahoma lawsuit of exempting Michigan businesses from the law’s “employer mandate,” which imposes penalties on job providers that can’t afford to offer government-approved health insurance. Plaintiffs argue — and they appear to have a strong case — that Obamacare only authorizes distributing subsidies through a state exchange. So if there is no state exchange there would be no subsidies, and if no subsidies then the mandate on a state’s employers could not be enforced.

It’s not hard to imagine the damage to Michigan’s economy if by creating a state exchange lawmakers made employers here subject to a costly federal insurance mandate that doesn’t apply to their competitors in other states. If successful, the Oklahoma lawsuit may also exempt most Michiganders from the law’s “individual mandate” to buy health insurance. To repeat, for purposes of this lawsuit, a “partnership” exchange is still a “federal” exchange, so a Michigan version would benefit from a favorable ruling.

The outcome of any lawsuit is speculation, but Gov. Snyder’s partnership negotiation may also alleviate concerns of health insurers and large health care providers, who have been lobbying for a state exchange in part because they fear a federal version could disrupt the state’s insurance market in ways damaging to their interests. While this won’t matter much to most residents, it’s very hard for a lawmaker to say “no” to local nurses, insurance agents, hospital executives and others who have been told their jobs could be at risk if the state doesn’t act. A negotiated partnership exchange may leave those doors open.

In addition, the negotiations may also include concerns related to the “customer assistance” and “navigator” provisions of the law. Among these is the threat that without a state exchange such novelties could be used to empower unions and left-wing interest groups whose ultimate goal is a full “single payer” system.

In summary, a state exchange would place huge burdens on state government, and inevitably would do what all such bureaucracies do, seek to grow and expand its mission. A “partnership” exchange leaves the burden on the level of government that created this mess, while mitigating the risks.

Moreover, as the Cato Institute’s Michael Cannon wrote in a recent column giving nine reasons legislators should still just say no: “Creating an exchange sets state officials up to take the blame when Obamacare increases insurance premiums and denies care to the sick. State officials won’t want their names on this disastrous mess.”

He’s right — they really won’t.