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11/27/2012 9:34:00 AM
Fight against Affordable Care Act shifts to the states
To some, Tenth Amendment is the new firewall against growing federal power

Richard Moore
Investigative Reporter

Wisconsin has joined a growing number of states that are refusing to set up a state health insurance exchange under the nation’s Affordable Care Act – a move that reflects a deepening and broad tension between the states and the federal government as much as it does concerns about the health-care law itself.

The state health insurance exchanges are designed for consumers who don’t have employer-provided health insurance to shop the market for individual policies at competitive rates. States can set up their own exchanges with federal funds, they can partner with the federal government, or they can cede authority completely to the federal government.

Walker and at least 19 other governors have decided to wash their hands of the exchanges altogether. The governor explained his decision in a Nov. 16 letter in which he said the most important consideration was protecting Wisconsin’s current and future taxpayers.

In the end, he said, the long-term risk was just too high.

“If a state takes on the task of running the exchange, it also commits to long-term spending obligations from uncontrolled costs that are not fully funded,” Walker wrote. “When federal funding dries up, costs for Wisconsin taxpayers would skyrocket under a state-run exchange. Putting state taxpayers on the hook for a program we cannot control is simply not responsible governance.”

Then, too, he said, no matter who sets up and administers the exchange, the federal government makes all the decisions and the final product is the same.

“The federal health care law dictates to Wisconsin and to our health care providers exactly what policies and products may be offered in the exchange and elsewhere,” Walker wrote. “Decisions regarding eligibility, minimum standard of coverage, and all other important details will be determined by our federal government.”

For example, the governor stated, the U.S. Health and Human Services secretary will define “qualified health plans” and the secretary of the U.S. Department of Labor will issue “best practices of plain language writing” for qualified health plans.

Third, Walker said, the federal government’s demonstrated lack of cooperation and detail increases the burden and risk to the state.

“While there has been ongoing rhetoric that states will have flexibility in creating a state-based exchange, we have seen very little cooperation from the federal government on issues related to the implementation of federal reform,” he wrote. “Thus far, HHS has provided little to no guidance on the impact of the U.S. Supreme Court ruling on the Medicaid elements and implementation.”

Finally, Walker wrote, the Affordable Care Act does not allow for a uniquely Wisconsin option. 

“In Wisconsin, we have been successful in providing health insurance coverage to over 90 percent of state residents without the creation of an exchange,” the governor stated. “Other states moving forward with state-operated exchanges have nowhere near our level of coverage. To preserve this, we would all like to build a uniquely Wisconsin exchange, but the reality is the federal health care law simply doesn’t allow it.”


Uniform policies

Whether an exchange is administered by the state or the federal government does not change the fact that the federal government will set uniform policies for all states, Walker argued, and he cited Utah to make his point.

“Utah had an established insurance exchange prior to the enactment of federal reform,” he stated. “As a result, the state has submitted their exchange to the federal government in an effort to meet the insurance exchange requirement. Rather than demonstrating a willingness to work with the State of Utah, the federal government simply directed the state to go back to the drawing board.”

In the end, Walker concluded, the only difference between the three options was the potential cost to taxpayers. 

“As a result of our decision, Wisconsin taxpayers and consumers will have access to the same products without the risk of having an extra burden placed upon them at a time when they can least afford it,” he wrote.

Reaction to the governor’s decision broke down along predictably partisan lines.

State Sen. Alberta Darling (R-River Hills), the co-chair of the Legislature’s budget-writing committee, said she fully supported the governor.

“For a program that was passed two years ago, the federal government still isn’t releasing enough details on how Obamacare will affect states,” Darling said. “It would be irresponsible to commit our state to a program that isn’t fully defined yet. This leaves our state with a decision between a bad option and one that is worse.”

Wisconsin has long been a leader in covering nearly all of its residents with health insurance, Darling said. 

“We also have excellent health care providers throughout the state,” she said. “It is doubtful that the federal government will allow Wisconsin to use all of its advantages in a state exchange.”

However, Democratic U.S. Rep. Ron Kind, who has been mentioned as a potential challenger to Walker in 2014, expressed disappointment.

“Gov. Walker put partisan politics before people today,” Kind said. “Instead of allowing Wisconsin to run its own health insurance exchange, make key health care decisions for Wisconsinites, and better meet the needs of families and businesses here at home, Gov. Walker punted that responsibility to Washington.”

Kind said health-insurance exchanges have always enjoyed bipartisan support.

“They allow small businesses, family farmers and individuals to choose amongst competing health care plans which are coupled with tax credits to make them affordable,” he said. “What’s not to like? I’m disappointed in Gov. Walker’s decision and hope that we can find a way to rise above the politics, work together, and provide access to quality, affordable coverage for the people of Wisconsin.”


A deeper motivation

While Walker’s stated concerns – future costs to taxpayers, no real flexibility for states – have been expressed by others, including some Democrats, others have pointed to a deeper reason Republican governors are rejecting the exchanges: an ongoing effort to effectively repeal the law itself on the state level.

As the theory goes, the Affordable Care Act is supported by two pillars of principle – the extension of health insurance to approximately 30 million Americans who have lacked it, and a federal mandate that everyone buy insurance, with federal subsidies making it affordable to the vast majority of people.

While last summer’s Supreme Court ruling upheld the individual mandate, it undermined the first principle by allowing states to opt out of Medicaid expansion. That was important because the Obama administration expected to expand health insurance coverage to a majority of the uninsured through mandated expansions of state Medicaid programs.

Now states are saying they won’t voluntarily join in. Wisconsin has not yet made a decision on that, but last week Oklahoma Gov. Mary Fallin said her state would not expand its program. All totaled, eight states, including Texas, have said they won’t expand their Medicaid programs, while five others are leaning against expansion.

Virginia Gov. Bob McDonnell said he simply didn’t think the expansions would be sustainable. McDonnell told the AP this month he didn’t believe the federal government “could possibly deliver its commitment to fully fund the program, and I don’t want to be part of contributing trillions of dollars to the national debt.”

So achieving the goal of vastly expanded insurance coverage remains elusive and largely in the hands of individual states. Now governors are using the health-care exchanges to challenge the other core principle of the Affordable Care Act.

For one thing, in a paper published last July, two legal scholars argued that federal exchanges aren’t allowed to provide subsidies to help pay for insurance coverage.

According to Jonathan H. Adler of Case Western Reserve University School of Law and Michael F. Cannon of the Cato Institute, The Patient Protection and Affordable Care Act provides tax credits and subsidies for the purchase of qualifying health insurance plans on state-run insurance exchanges but not on federal ones. 

“Contrary to expectations, many states are refusing or otherwise failing to create such exchanges,” they wrote in the paper. “An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own.”

That rule, they maintain, lacks statutory authority. 

“The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges,” Adler and Cannon wrote. “The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because the granting of tax credits can trigger the imposition of fines on employers, the IRS rule is likely to be challenged in court.”

If it is, and if opponents of the health law are successful, states could effectively repeal the law by refusing to set up exchanges. Without the ability to provide subsidies, far fewer people would enroll, and the exchanges – and the law – would collapse under their own weight.

Many scholars are skeptical such a challenge will prevail in the courts. However, and perhaps more important, the federal exchanges still face a formidable obstacle: Congress did not appropriate money for them.

To say it another way, the federal government won’t have any money to run the exchanges unless they can get the GOP-controlled House of Representatives to appropriate money. Without such an appropriation, the federal government could still shift funds to establish the exchanges, but whether such funding would be adequate would be problematic, and many believe the exchanges would likely become a bureaucratic nightmare.

And so the fight over the law continues as 2012 comes to a close. But while the outcome is uncertain for the Affordable Care Act, the stage has clearly shifted from the national to the state stage. How it plays out could well forecast the successes or failures of an increasing number of state initiatives to resist the expansion of the federal government,

Richard Moore may be reached at richardmoore.gov@gmail.com

Reader Comments

Posted: Wednesday, November 28, 2012
Article comment by: Ric Joyner

Two aspects missed by your article are

1. An exchange exists now called insurance brokers. People can call any local broker and find competitive quotes and get educated plus have an advocate in case claims are not paid. Why set up another mechanism? Why didnt you find out why pres obama wants alternatives to what exists thus diplicating what has been efficient? And yes it is efficient. And now with no underwriting for getting a policy required in 2014 everyone is on the same playing field. Why didnt your article focus on the many family farms oops i mean insurance agencies that are wiped out due to a duplication of efforts with the exchanges? So maybe walker is right not to set up an exchange. Why duplicate and spend taxpayer money setting up an e change when we dont need to?
2. That health insurance delivery has now become politicized. Meaning that whatever party is in office they appoint the people writing the laws and enforcement. So whatever the leaders philosophy is will be whether it goes forward or not. That is why a profit centered delivery system for health care (because from end to end it is profit driven) makes more sense because ideology doest start or stop it.

Last comment. Why not stretch medicare over everyone and then everyone gets a base firewall aka insurance plan and the then current system can sell medicare supps.

But that was too easy. Why does pres. o want a giant bureaucracy?

Good article just needs some deeper question answered. And since you are an investigative journalist go for it )

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