What If More States Had Set Up Their Own Obamacare Exchanges?

Politico’s Kyle Cheney and Jennifer Haberkorn have made the case that Republican non-collaboration with Obamacare has brought a completely federally controlled healthcare system closer to reality:

Right now, 36 states rely on HealthCare.gov, the federal exchange, to enroll people in health coverage. At least two more states are opting in next year, with a few others likely to follow. Only two states are trying to get out.

That’s precisely the opposite of the Affordable Care Act’s original intent: 50 exchanges run by 50 states.

The federal option was supposed to be a limited and temporary fallback. But a shift to a bigger, more permanent Washington-controlled system is instead underway — without preparation, funding or even public discussion about what a national exchange covering millions of Americans means for the future of U.S. health care. It’s coming about because intransigent Republicans shunned state exchanges, and ambitious Democrats bungled them.

This is a complete misreading of the implications of the unexpected fiasco of the exchange rollout. It is also similar to an argument that was deemed respectable in limited-government circles back in 2010.

When Obamacare was being rammed through Congress, many believed that Republican governors and legislatures should get a “seat at the table” by establishing state exchanges. They could then ameliorate the worst aspects of the law.

However, others held that any collaboration with Obamacare, beyond the strictest letter of the law (which is more than President Obama can say for his own administration’s performance), would leave the stain of Obamacare on those who rolled with it. In October 2010, I wrote:

States establishing Obamacare exchanges are making a one-way, lose-lose, bet. If Obamacare persists, exchanges will become bloated administrative nightmares. If Obamacare is defeated, states will have wasted time and energy that should have been directed towards that effort. Obamacare is President Obama’s problem. Don’t make it your state’s problem.

The latter argument clearly won the day, and no subsequent development shakes it. Although states retain a large amount of regulatory power over health insurers, that power is no different in a state with a federal exchange than in a state with a state exchange.

Compare Obamacare to Medicaid. State revenues fund almost half of Medicaid, which should allow the states some measure of sovereignty over that program. Nevertheless, Medicaid is micro-managed by a bloated federal bureaucracy, and states complain bitterly about the tight strings attached to federal funds. A state health-insurance exchange could hardly mitigate federal control of Obamacare, given that all the money flowing as tax credits through exchanges is federal.

If Republican-governed states had set up Obamacare exchanges, they would have either “succeeded” (like Connecticut’s) or failed (like Oregon’s). States where exchanges had “succeeded” would have been dug in deeper in Obamacare, with newly empowered state bureaucrats invested in the law’s progress, undermining the state’s attempts to advance alternative, patient-centered reforms. States where exchanges had failed would simply shut them down and yield to a federal exchange — the same outcome as not having set up a state exchange at all.

States that did not set up Obamacare exchanges should remain confident that they made the right choice.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.