ObamaCare’s Faux Federalism

Having failed to persuade 26 states that participating in ObamaCare is a good deal, the liberals behind the law are denouncing these dissident Governors as federalist hypocrites. A few critics on the right are chiming in and arguing that the 26 are inviting worse results once the feds swoop in.

So someone ought to say a word on behalf of the people who run state governments in the real world and have examined the health insurance “exchange” question in detail. They’ve seen enough to know that the choice to set up and run these insurance bureaucracies is not a choice at all. 

The “federalism” ruse is a special instance of bad faith. If federal-state cooperation means anything, then it requires some element of genuine state control and the freedom to innovate. The Health and Human Services Department is abusing the laboratories-of-democracy line as cover even as it prohibits states from doing experiments. And it’s dictating details down to the lab coats and microscopes.

The folks at HHS envision the exchanges as centralized, interventionist, hyper-regulatory bodies. HHS’s idea of flexibility is telling the states they can make the exchanges even more centralized and interventionist. But if they don’t agree to that model, then Washington will impose it anyway.

The truth is that liberals never wanted the states involved. In 2010, the Pelosi Democrats were forced to swallow a Senate bill that included state exchanges because it was the only ObamaCare vehicle after Scott Brown won the Massachusetts Senate seat.

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Now HHS is rewriting the law to create federal exchanges that the states only nominally govern. HHS for instance claims states can define the essential benefits that all plans must cover, within federal minimum standards, but those minimums are already much higher now than they were in the draft a few months ago. The Affordable Care Act forces states to use their own personnel and resources to do federal bidding and blurs if not erases the lines of political accountability between levels of government.

ObamaCare also creates new obligations for the states even if they don’t opt in. The press corps is uncritically accepting HHS’s fantasy about the exchanges as sleek one-stop consumer websites resembling Travelocity or Expedia EXPE +0.21%. Er, this is not how state and local governments operate day to day.

Take Wisconsin. Of the 379,000 assistance requests the Wisconsin health services department received in 2012 for Medicaid and other programs, 38% were handled in person or by telephone and mail, and every online application is reviewed by a state worker. It costs $150 to process each one. HHS seems to think that few humans will be required. Is HHS planning to field a customer service department for the Wisconsin exchange that it will be running in the state’s name?

Amid mass confusion over the federal exchange rules, Wisconsin is preparing for its citizens to flood state agencies for help. It estimates that it could spend as much as $50 million in new staff and administrative costs over two years under a federal exchange—but even more under a state version.

The conservatives telling the states to join ObamaCare are disconnected from this reality. Otherwise sane people like the budget expert Doug Holtz-Eakin and former Utah Governor Mike Leavitt argue that exchanges are a good idea and states are giving the federal government more power by not developing one. Their reasoning (we use the term loosely) managed to peel off Idaho Governor Butch Otter and a few other Republicans.

We also held out this hope when ObamaCare was more abstract, but HHS is taking a hard line on rules and mandates. Governors aren’t giving up control; they never had control in the first place. Who runs an ObamaCare exchange is irrelevant to how it is run or what it does.

It’s true that the exchange concept originated among free marketeers to maximize competition among insurers and providers and help people sort options and make better health-care choices. But those exchanges are illegal under ObamaCare. Utah built such an exchange in 2006 and is asking HHS to certify it as ObamaCare-compliant. The chances of HHS doing so are approximately zero.

The exchanges that will work aren’t going to be run by the government. Insurers including Blue Cross Blue Shield, WellPoint and Highmark already use internal exchanges for some of their retail products. ADP, AON AON +0.83%Hewitt, eHealthinsurance and others connect employers and consumers with multiple plans through exchanges too. Private exchange are far more nimble and useful than whatever HHS is concocting.

The fact is that many Governors actively wanted to participate but were driven off by HHS’s coercive rules, chronic lack of communication, unrealistic deadlines and delusions of competence. Republicans like Chris Christie (New Jersey), Tom Corbett (Pennsylvania) and Bob McDonnell (Virginia) are moderate and practical Governors who couldn’t abide the Administration’s methods.

As for conservatives who say running an exchange is a last stand against single-payer medicine, well, all we can say is good luck with that one. ObamaCare was designed to make a Washington-dominated and -paid for system inevitable. Within three or four years the same people who passed ObamaCare will be talking about “solving” ObamaCare’s government-created problems with more government. The 26 Governors are merely saying they won’t be accomplices.