Gov. Mary Fallin and other legislative leaders recently announced their intention to accept more than $55 million dollars in grant funding from the U.S. Department of Health and Human Services (HHS) to establish an insurance exchange in Oklahoma. To date, 48 states have accepted at least $1 million in federal funds to begin implementing exchanges, with only Florida and Alaska standing firm. The seemingly schizophrenic actions of states that simultaneously accept federal funding to implement Obamacare’s provisions while suing to overturn the law has sparked a spirited debate among conservatives about the best course of action in the effort to “repeal and replace” the unpopular law.

There are valid questions being raised on both sides of the argument: should states resist at all costs implementing any aspect of ObamaCare or should they take the funding, create their own version of a health exchange and seek approval from HHS later?

One side argues that not only has a federal court ruled the law unconstitutional, but accepting federal dollars to implement high-risk pools or insurance exchanges while suing the federal government to overturn the federal health law sends mixed messages and undermines efforts to “repeal and replace” Obamacare. Oftentimes, federal court decisions are based on the pulse of the nation. Having more than half of the states suing the federal government to overturn Obamacare sends a powerful message to the Supreme Court about how the populace perceives the federal health law; but when many of those same states are moving forward on implementing the provisions of the law, a real question is raised about how unworkable the states really believe the law is.

The other side argues that to hinge all of your hope on the Supreme Court or a “repeal and replace” effort is unwise at best and galactically foolish at worst. Andy Spiropoulos, a constitutional law professor who also serves as OCPA’s Milton Friedman Distinguished Fellow, believes the law will be upheld. Spiropoulos is a former professor of mine and an expert on Supreme Court jurisprudence, so I tend to take seriously his opinions. If that holds true, our hopes rest solely on a conservative winning the White House in 2012 who will sign a Congressional repeal of the law.

As with everything else in life, the better course of action is to actually prepare in the event things don’t turn our way. To be clear, health insurance exchanges are not the optimal health policy that will fundamentally change our broken healthcare system, but they are certainly an important tool in the toolkit. All of this, of course, assumes that HHS would grant Oklahoma’s (presumably free-market rather than Obamacare-styled) exchange a waiver once it was up and running, which is no sure thing. With that, here are four reasons why implementation of a health insurance exchange is not necessarily a bad thing:

(1) The federal tax code distorts health insurance markets. Currently, the federal tax code incentivizes the purchase of insurance by the employer by allowing that coverage to be purchased with pre-tax dollars. On the other hand, an individual who wishes to purchase coverage in the individual market must do so with after-tax dollars. This, combined with higher administrative costs, adds 40 to 50 percent more to the cost of a plan in the individual market. This policy also prohibits portability of coverage because the insurance plan belongs to the employer, not the employee. Not to mention how this policy removes the beneficiary-employee from the transaction, which insulates him from the real costs of care and encourages excessive consumption of health care. Many astute health policy experts recognize the third-party payment system created by employer-sponsored health coverage is the primary driver of increased healthcare spending.

(2) Exchanges can correct marketplace distortions. Absent Congress simply changing the tax code, an insurance exchange would allow an individual or family to purchase, own and keep insurance coverage from job to job. Employers can elect the exchange as their provider, thereby allowing employees to shop for coverage in the exchange with pre-tax dollars. Employees would then own the plan apart from the employer and be able to continue coverage even when moving from job to job. While the exchange wouldn’t correct the perverse tax burden faced in the individual market, the centralized functions of the exchange would lower transaction and administrative costs in that market.

(3) Brokers and agents will continue to have a role. One of the disproportionate consequences of Obamacare is that insurance brokers and agents will lose their jobs when the exchanges are in place, or at best, be reduced to mere “navigators” for employers and individuals in the exchanges. That is primarily because Obamacare reduces insurance options to essentially four plans for people to choose from. Under a free-market styled insurance exchange where numerous options are available, brokers and agents would continue serving as the experts in the insurance market for employers and individuals. In Utah, the only other state-based exchange in the nation, brokers and agents are paid a flat fee (rather than a commission) for every client they sign up or for every employee of an employer who enters the exchange. While this may not be the optimal scenario for many brokers and agents, it is better than having no job at all.

(4) Exchanges “done right” are conservative. Exchanges were first introduced by the Heritage Foundation nearly a decade ago. While the model was heisted by Massachusetts Governor Mitt Romney in 2006 and President Barack Obama most recently, those exchanges are perversions of the initial free-market concept of exchanges. The Heritage Foundation envisioned exchanges as a centralized online “marketplace” that was lightly regulated, where transactions costs were reduced, where all types of health products could be bought and sold, where all insurers could participate and compete, and where competition would promote real choices for consumers. Obamacare exchanges are not free-market, Heritage-styled exchanges. Obamacare picks winners and losers by determining which insurers can participate and places minimum requirements on plans sold in its exchanges, which severely limits choices for consumers. An exchange model based primarily on Utah’s patient-centered exchange rather than the Massachusetts’ care-rationing model would be a good starting place for Oklahoma.

Again, insurance exchanges, if created as a lightly regulated, free marketplace with all options of products available, are not necessarily a bad thing. To date, Oklahoma’s leaders have given indications they intend to pursue a patient-centered, consumer-based exchange model rather than the restrictive, rationing model required under Obamacare. In a news release announcing the state would accept the grant, Senate President Pro Tempore Brian Bingman stated, “Real solutions to our health care needs are best found through market-based principals of choice and competition. The health insurance exchange empowers Oklahomans with those free-market tools.”

Only time will tell if leaders stay true to that course, but for now, at least we have somewhat of a course to choose. In 2014, if we have done nothing and other avenues to overturn the law have failed, the federal government will choose our course for us.