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Why governors should not implement state insurance exchanges under Obamacare

Governors and other state officials are deciding whether their state will establish a Health Insurance Exchange. The Department of Health and Human Services has given states until Friday November 16, 2012 to decide. Maine has already decided not to establish an exchange.

By Bill Wilson

Americans for Limited Government

Those governors that are today considering whether or not to implement a state-run health insurance exchange under the new health care law may hold the fate of Obamacare in their hands.

Under the law, state exchanges would be responsible for dispersing some $800 billion to private insurance companies. There is no question that if governors decide to implement such an exchange, they will be aiding and abetting the implementation of this law.

That is because implementing a state exchange neutralizes the ability of businesses to fight the job-killing employer mandate.

According to a recent study by Case Western Reserve University School of Law’s Jonathan Adler and the Cato Institute’s Michael Cannon, “Taxation without representation: The illegal IRS rule to expand tax credits under the PPACA.” a federal exchange that would be implemented in the stead of a state exchanges  “lacks statutory authority” to dispense the insurance subsidies.

In the study, Adler and Cannon make the case that “An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own.”

The problem, according to Adler and Cannon, is that the “text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds.”

This creates a real problem legally for the Obama Administration in states that a federal exchange is implemented. By not implementing the state exchange, governors such as Rick Perry in Texas or Bob McDonnell in Virginia are effectively giving employers in those states the standing to sue against the new IRS rule.

In other words, it creates an avenue to fight against the implementation of the law. For employers that do not wish to be under Obamcare’s thumb, such a move at least gives them a fighting chance.

But if the exchange is implemented by the states, employers in those states will not have any chance at all to challenge the law.

If courts do rule that federal exchanges in fact do not have the legal authority to disperse the insurance subsidies, the law would effectively be gutted. States that want to gut the employer mandate would be able to do so.

That is because states under the recent Supreme Court ruling by John Roberts upholding parts of the law are not obligated to expand Medicaid eligibility. A combination of not executing the insurance subsidies and opting out of the Medicaid expansion would effectively defund the law in those states.

In turn, this would extend protection from the employer mandate to businesses in those states. Without the cost burdens imposed by the state exchange, affected employers would enjoy a significant competitive cost advantage over their competitors in states which have exchanges.

The Roberts ruling was devastating to those who do not wish to see the federal government administering a national health care law, but the fight is not yet lost.

Governors of all states that oppose this law have a responsibility to their constituents not to implement the state health insurance exchanges.

In the process, they will force the Obama Administration to implement federal exchanges, and, in turn, to defend them in court when challenges arise. This may be the last, best chance for the states to undermine the law, as Republicans in Congress will lack the votes to repeal it in the upcoming congressional session.

Another area to litigate is that although all appropriations are supposed to originate in the House, the Medicaid and insurance subsidies under the law fall into the constitutionally questionable category of so-called “mandatory” spending. Like Medicare and Social Security, funding for Obamacare is set to run on autopilot for as long as the law stands.

That means unless the courts are prepared to address the constitutionality of automatic spending, it will take both houses of Congress to repeal the law, and either the President to sign the repeal or both houses to override a veto, in order to defund the largest parts of it.

In the meantime, it is up to the states to force Obama to fight for every inch of his law. This is no time for collaboration.

Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.

States NOT establishing a State Exchange (17):

ALABAMA
ALASKA
FLORIDA
INDIANA
IOWA
KANSAS
LOUISIANA
MAINE
MISSOURI
NEW HAMPSHIRE
NORTH DAKOTA
OHIO
SOUTH CAROLINA
SOUTH DAKOTA
TEXAS
VIRGINA
WYOMING

Undecided States (15):

ARIZONA
ARKANSAS
GEORGIA
IDAHO
MICHIGAN
MONTANA
NEBRASKA
NEW JERSEY
NEW MEXICO
NORTH CAROLINA
OKLAHOMA
PENNSYLVANIA
TENNESSEE
WEST VIRGINA
WISCONSIN

States plan to establish a State Exchange (18):

CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
HAWAII
ILLINOIS
KENTUCKY
MARYLAND
MASSACHUSETTS
MINNESOTA
MISSISSIPPI
NEVADA
NEW YORK
OREGON
RHODE ISLAND
UTAH
VERMONT
WASHINGTON

 

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