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Don’t start a state health exchange - Pacific Research Institute

Don’t start a state health exchange

Last December, Virginia Attorney General Ken Cuccinelli struck a significant blow against the federal government’s attempted takeover of our access to medical care. Virginians should be pleased, but the state needs to follow through or Cuccinelli’s effort will be wasted.

Federal Judge Henry Hudson accepted Cuccinelli’s argument that the so-called “individual mandate” — which levies a financial penalty (or fine) on residents who decline to buy a government-dictated health policy from a private insurer — is beyond the powers of the federal government. This was amplified in January, when another federal judge, Roger Vinson, agreed with Florida and 25 other states that the entire federal law — not just the individual mandate — is unconstitutional.

Gov. Bob McDonnell is encouraging Cuccinelli’s lawsuit and notes that Obamacare imposes an unfunded mandate that will cost Virginia about $2 billion a year.

Unfortunately, Gov. McDonnell and Health and Human Resources Secretary Bill Hazel made the mistake of delegating Virginia’s operational response to health reform to the Virginia Health Reform Initiative Advisory Council. Appointed last August, the VHRIAC promised to “go beyond federal health reform.”

Its most dangerous recommendation is that Virginia should establish a health benefits exchange. This is precisely how Obamacare expects states to do much of its dirty work. The federal law incentivizes employers to drop health benefits (despite the president’s promise) and drive individuals into exchanges where the individual mandate becomes operational.

Obamacare prescribes states’ “flexibility” in structuring exchanges, and some believe that it is possible to design an exchange that increases consumer choice. Two states, Massachusetts and Utah, already have exchanges.

Some claim that the Utah Health Exchange is a consumer-friendly model that can blunt the most harmful consequences of Obamacare. However, Utah’s exchange has been a disappointment. Although 20 businesses enrolled on the first day of operations in August 2009, only 13 remained enrolled by the end of 2009. As a result, the exchange is being re-launched with new rules in 2011.

A “successful” exchange is very expensive to operate. Massachusetts’ Commonwealth Connector spent more than $26 million on vendors and contractors in 2009, and $3.4 million on employee compensation. This is fully 3.5 percent of the money that businesses and enrollees paid into the exchange —– on top of the bloated administrative costs that already burden our health insurance.

This cash flow explains why information technology vendors and consultants, health insurers who believe that they can dominate an exchange to the detriment of smaller competitors, and brokers who hope to get paid by government to serve as “navigators” in the exchanges, are investing heavily in lobbying states to establish exchanges.

Lobbyists also warn that if states don’t establish their own exchanges by January 2013, the Obamacrats will do it for them. This is highly unlikely.

Kathleen Sebelius, the U.S. secretary of health and human services, has already missed many deadlines demanded by the legislation. The new congressional majority will take away her checkbook, further diminishing her ability to roll out Obamacare.

The greater risk is that Virginia establishes an exchange it believes will blunt the worst effects of the federal takeover. Given Obamacare’s unpopularity, Sebelius is likely to approve such an exchange for the short term. If advocates of repeal fail over the next two years, however, Sebelius will surely sweep away any “consumer-friendly” accommodations with a vengeance.

A health benefits exchange is a one-way, lose-lose bet. If Obamacare persists, it will become a bloated bureaucracy. If Obamacare is defeated, Virginia will have wasted time and energy.

To preserve Virginians’ access to health care, Gov. McDonnell needs to stop listening to academics and bureaucrats — and start listening to individuals and businesses already suffering from Obamacare. His administration needs to cease collaboration with the federal government on establishing a health benefits exchange.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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