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How states can disarm Obamacare

Obamacare dodged two bullets this year. First, it survived Supreme Court review when Chief Justice Roberts found a way to uphold its constitutionality. Second, it survived the election which saw Obama defeat a candidate who promised to undermine Obamacare care and support its repeal.

Does this mean that Obamacare is a done deal? Not according to Yuval Levin and James Capretta. They note that the law is heavily dependent on state implementation, and that some states may not do the federal government’s bidding.

The states, Levin and Capretta remind us, have two key choices to make that together will put them in the driver’s seat: whether to create state health-insurance exchanges and whether to expand Medicaid. As to the first choice, running the exchanges would be an administrative nightmare. It would require a complicated set of rules, mandates, databases, and interfaces to establish eligibility, funnel subsidies, and facilitate purchases. Moreover, this would have to be accomplished in the context of what Levin and Capretta describe as “broad and often incoherent statutory requirements and federal regulations that have yet to be written.”

To make matters worse:

The exchanges would create unsustainable pressures on each state’s insurance market, treating similarly situated people differently by providing far greater subsidies for those in the exchanges than those in employer plans—yielding perverse incentives that distort consumer and employer decisions and increase costs. States would endure all this simply to become functionaries of the federal government. The idea that creating state exchanges would give states control over their insurance markets is a fantasy. The states would be enforcing a federal law and federal regulations, with very little room for independent judgment.

Not surprisingly, then, some governors — including Bobby Jindal, John Kasich, and Scott Walker — have already indicated that they won’t build the exchanges. Others, including a few Democrats, have expressed reservations.

Without state participation, the burden and costs of the exchanges falls on the federal government. And Levin and Capretta question whether the administration could operate the exchanges on its own.

Congress didn’t allocate money for administering federal exchanges, and the law as written seems to prohibit federally run exchanges from providing subsidies to individuals. The administration insists that it can provide those subsidies anyway. But if the courts read the plain words of the statute, then federal exchanges couldn’t really function.

States are also free to refuse the expansion of Medicaid. That expansion would throw millions of additional Americans into a system that, according to Levin and Capretta, is already bankrupting state governments and increasing costs in the private-insurance market. Indeed, “Medicaid’s payments for services are so low that many existing beneficiaries have trouble finding physicians and other health-care providers who will accept them as patients.” Thus, enrolling even more people without reform “will push the system to the point of collapse.”

Under these circumstances, it would hardly be surprising if more than a few governors decline to play along with the administration on Medicaid.

Eventually, then, we could be left with two sets of health care systems in this country — sort of like baseball with the “Designated Hitter Rule.” Presumably, one system would work better than the other, so that, unlike in baseball, voter pressure might lead to the discarding of the less popular system.

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