Health exchanges a bad idea for Wisconsin

Wisconsin Attorney General J.B. Van Hollen has joined the multistate legal challenge to the federal health reform law. The law has been unpopular with Badger State voters for some time; nearly 60% favored repeal in a Rasmussen poll taken just before the midterm elections.

Fortunately, Wisconsin can help defeat this top-heavy federal takeover of its residents’ access to health care. By refusing to establish the health insurance exchanges prescribed by the new law, Wisconsin’s leaders can avoid wasting state tax dollars doing the reform law’s dirty work – and protect the health insurance choices of their constituents in the process.

The letter of the law prescribes states “flexibility” in structuring exchanges, and some believe that it is possible to design an exchange that increases consumer choice. Massachusetts and Utah already have exchanges. Before health care reform, exchanges were suggested as a way to get around the major government failure in American health care: employers’ congressionally sanctioned monopoly control of our pre-tax health dollars, which limits our choices.

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

Knowing that many states, including Wisconsin, will be under Republican single-party rule this year, certain business interests are making unlikely arguments in favor of the reform act’s exchanges. These interests include IT vendors and consultants, health insurers who believe they can dominate an exchange to the detriment of smaller competitors and brokers who hope to get paid by the government to serve as navigators in the exchanges.

Some lobbyists claim that states can drop out of Medicaid and drive all of their former dependents into exchanges, where they will enjoy budget-busting federal tax credits. Even if this were possible, simply exploiting health care reform to transfer liabilities to the federal government hardly solves the national challenge of out-of-control health care spending. The perverse incentives resulting from such a “reform” would surely discourage Wisconsin politicians from rolling back the Affordable Care Act.

Appealing to conservative sentiments, lobbyists also warn that if states don’t establish exchanges by January 2013, the federal government will do it for them. This is highly unlikely. U.S. Secretary of Health and Human Services Kathleen Sebelius already has missed many deadlines prescribed by the legislation.

The greater risk is that Wisconsin would establish an exchange that it believes blunts the worst effects of the federal takeover. Given the Affordable Care Act’s unpopularity, Sebelius is likely to approve exchanges for the short term, making the law appear less harmful than it really is.

If advocates of repeal fail during the next two years, Sebelius surely will sweep away any “consumer-friendly” accommodations with a vengeance. Once the exchanges are up and running, the Obama administration will be able to impose whatever arbitrary regulations it wants.

Wisconsin also would find that an exchange is very expensive to operate. Massachusetts’s Commonwealth Connector spent more than $26 million on vendors and contractors in 2009 and $3.4 million on employee compensation. This makes up 3.5% of the money that businesses and enrollees paid into the exchange.

Any state establishing an exchange is making a one-way, lose-lose bet. If health care reform persists, exchanges will become bloated administrative nightmares. If it is defeated, states will have wasted time and energy that should have been directed toward that effort. Health care reform is the president’s problem. Wisconsin’s leaders shouldn’t make it theirs, too.

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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