Responding to ObamaCare

August 1, 2010

The recently enacted Patient Protection and Affordable Care Act, the federal government’s sweeping health care legislation, will impose significant new costs on state government budgets, while also constituting a significant usurpation by the federal government of longstanding state authority over health insurance regulation.

The immediate task for state lawmakers is to find ways to protect their constituents—including state taxpayers, health insurance policyholders, and individuals who depend on public health care programs—from the adverse effects of ObamaCare.

The fact that some of the most expensive and disruptive provisions of ObamaCare do not take effect until 2014 should not lull state lawmakers into thinking that they can wait for the results of the Obama Administration’s regulatory implementation or the outcome of the renewed health care legislative battle in the next Congress before acting. Some significant provisions took effect upon enactment and a number of others will go into effect later this year or next year.

Thus, governors and state legislators need to start planning their responses and start drafting any applicable legislation for consideration in their next legislative sessions—now. Failure to do so means surrendering control over a large share of their states’ current budgets to federal officials and becoming passive bystanders as—faced with an onslaught of new federal regulation—private insurers scramble to position themselves for an ObamaCare market by taking steps that will likely result in less insurer competition, fewer plan choices, and higher coverage costs, all beginning next year.

The wisest approach for state lawmakers is to take steps that better position their states for either of two possibilities: a new Congress that repeals ObamaCare, or a protracted, multi-year political and legal battle conducted against the backdrop of an Administration attempting to implement the legislation as enacted.

How Oklahoma Officials Should Respond

Make no mistake, ObamaCare creates significant fiscal and policy challenges for states. The broad effects of the legislation, if implemented as enacted, will be to impose significant new Medicaid costs on state taxpayers, disrupt state health insurance markets and the current coverage of tens of millions of Americans, and usurp state authority. The new federal insurance regulations, particularly the provisions setting new, uniform federal benefit requirements, will reduce coverage options for individuals and employers and will likely drive up health insurance premiums. They are also likely to result in greater concentration in health insurance markets, leaving only a few large insurers operating as public utilities with a regulated low rate of return selling undifferentiated products to customers with no other options.

Maryland’s experience is instructive in this regard. In 1993, the state of Maryland imposed on its small-group health insurance market a minimum package of standardized benefits, annually updated by a state commission—a design similar to that in the new federal law. One result was that competition has declined to the point where the same two carriers have now covered more than 90 percent of all individuals in Maryland’s small-group market for years.

Governors and state legislators need to start planning their responses to ObamaCare now. Specifically, state lawmakers should immediately and aggressively pursue the following strategies:

• Shift non-elderly Medicaid and CHIP enrollees into premium support.
• Refuse to administer the new federal high-risk pools.
• Decline federal “premium review” grants.
• Implement state health insurance market reforms and exchanges based on state, not federal, designs.
• Insist that federal officials explain publicly how they will administer ObamaCare.
• Conduct and publicize “benchmark” analyses.

For more details on these recommendations, see our recent paper “ObamaCare: Impact on States” (http://bit.ly/9fHj1p), from which this article is adapted.

ObamaCare will not only alter the relationship between individuals and the federal government, it will also alter the relationship between the federal government and the states. Under the terms and conditions of the act, the states would be reduced to mere agencies of federal authority, carrying out the policy agenda of the Secretary of the U.S. Department of Health and Human Services.

Some of the relevant provisions of this law that directly affect the states will not go into effect for four years, and by that time, the law may be substantially changed, amended, or even repealed.

In the meantime, state officials should recognize one simple fact: States are not mere agents of federal authority. They are not powerless. There is absolutely nothing that requires them to assist in implementing this misguided legislation. Rather, they should take every opportunity to assert their rightful authority and resist—within the confines of the law and the Constitution—any inappropriate or unconstitutional exercise of Washington’s power and aggressively advance their own, better solutions. In other words, they have a duty to represent their citizens.

Edmund F. Haislmaier is a senior research fellow and Brian C. Blase is a policy analyst in the Center for Health Policy Studies at The Heritage Foundation.