11.14.2012 10

Why governors should not implement state insurance exchanges under Obamacare

By Bill Wilson — 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.

  • Again, it all comes down to the states to resist unconstitutional federal tyranny. Texas and Florida are the key states in this and both (God be praised) understand what’s at stake. Obamacare is, in many ways, the cornerstone to implementing an unshakeable despotism over the states. The instrument of state sovereignty must now be crafted, promoted to the other Heartland states and engendered to create a unified front in support of constitutional principle. God help us all if we fail.

  • sooner4ever

    Of course, if any state does determine that it won’t comply, the federal government will just cut off all federal funding until the state is in compliance. That’s tyranny, but it’s effective.

  • OK Bill, we get your resentment. How about proposing something that would actually solve the problem? No, I don’t mean making it impossible to sue for malpractice, or selling insurance across state lines. Yesterday guns were your issue to “freedom”, today it’s fighting health care. Tomorrow, i’m sure, it will be “more pollution,” and “arsenic is a drug,” the wonders of coal… we’ve all seen it all, so how about something on a positive note? People are not going to give up the gains that have been made. Maybe you should argue for single payer and cutting the insurance companies out of the mix . . . but that would be anti business, wouldn’t it?

  • Bob

    Anything & everything should be done to make Nobamacare go away, NOW!!!

  • Thor

    Pretty embarassing that Colorado was a “swing state” instead of being solid red. As a decendant of a pioneer who settled Colorado I can tell you all of my family were conservative, worked hard, never gave free money to lazy slackers & bums like Obama. We owned guns, hunted and went to church. We helped fellow citizens & family that deserved it during hard times. Making everyone poor is not the solution.
    Shameful we are listed as a state that will implement Obamacare. If Idaho would decide to shove Obabacare I’d move….but guess I’ll head to Texas!!!

  • Rulz

    Repeal ObamaCare!

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