The Obama administration’s plan to implement insurance exchanges in time for Jan. 1, 2014, enrollment has met substantial state government opposition, raised more questions than answers and flashed warning signs of trouble ahead. A clear majority of states — 34 — still are not fully on board with running their own healthcare exchanges to comply with the dictates of the Affordable Care Act (ACA). Most of those states — as many as 26 — would rather leave the daunting implementation process entirely in the hands of federal officials. Just last week, Utah finally gave up on getting authorization for its proposed state-based exchange for individuals.

Many state governors remain reluctant, if not fully opposed, to enlisting as sorcerer’s apprentices in magically building the key regulatory architecture for ObamaCare. It might simply be good short-term politics for red-state Republican officials to avoid the blame for ongoing complications and contradictions that were made in Washington, but opposition to ACA-style exchanges should also reinforce a more principled strategy: to reshape the future nature of our healthcare system by supporting a better model of true choice and competition for willing buyers and sellers of diverse health insurance products.

The fuzzy sales rhetoric for ACA-style health exchanges does not match their real nature. ObamaCare’s implementation blueprint goes far beyond modest restructuring of problematic portions of the health insurance market. 

The more ambitious political agenda of the healthcare law’s drafters includes three primary goals: (1) expanding the federal government’s regulatory control over private health insurance; (2) facilitating substantial income redistribution through new premium assistance subsidies; and (3) establishing greater voter loyalty from constituencies increasingly dependent on government-brokered channels for healthcare. 

The new healthcare law’s architecture adopts only the appearance — not the reality — of private-sector delivery and state government administration. 

State-administered healthcare exchanges are key mechanisms to enforce mandates for employers to provide ACA-approved coverage and for individuals to purchase it. As politically favored monopolies, those exchange bureaucracies will have every incentive to limit competition from private-market alternatives. They also will place maximum emphasis on expanding enrollment in a largely unreformed Medicaid program.

Dozens of state governors have complained primarily about the uncertainties, costs and complexities involved in implementing state-based healthcare exchanges for the first time. 

Even the recent wave of hundreds and hundreds of pages of regulations issued over the last two months has failed to answer the important questions of state policymakers. The Obama administration changed the name of exchanges to “marketplaces,” but altered little else in a flawed product. Meanwhile, the timetable to meet already unrealistic 2014 deadlines has become even shorter.

This is the inevitable legacy of a sweeping healthcare law that matched grandiose political ambitions to transform many established health insurance practices with the tools of badly drafted language, deceptive marketing, untested mechanisms and unchecked bureaucratic discretion. 

The Obama administration insists it can field initial versions of exchanges run by the federal government in holdout states in time for open enrollment, which starts this October. But those mechanisms’ ability to coordinate necessary flows of integrated data for eligibility and payment operations, let alone provide adequate customer service, remain questionable. 

The White House desperately needs the infrastructure and experience of state-level officials to pull off an unprecedented nationwide rollout. 

Moreover, it wants state governments to serve as political heat shields to absorb most of the blame and burden for what is likely to go wrong.
State opponents of ACA-style exchanges should go beyond just complaining about unclear rules and high costs. 

First, they should support the litigation strategy of the state of Oklahoma, which is challenging in federal court the validity of an Internal Revenue Service rule that authorizes federally run exchanges to distribute the ACA’s premium assistance tax credits to their enrollees. 

The legislative text of the health law passed by Congress in March 2010 is quite clear that only health benefits exchanges “established by a state” are authorized to provide such tax credits. If the state’s challenge succeeds, federal exchanges will pose little threat to non-participating states. 

Second, for an alternative version of coverage expansion at the state level, governors should insist on mechanisms that are simpler, more consumer-friendly and scaled back to work within existing capabilities and institutions. Rule-making for ACA exchanges should operate through more formal and final legal channels. 

If state opponents decline to be tax-collecting branch offices for the federal welfare state’s new insurance mandates, they can force federal officials to return to the negotiating table with states and their constituents as equal partners. 
 
Miller is a resident fellow at the American Enterprise Institute and author of When Obamacare Fails: The Playbook for Market-Based Reform.