On Obamacare, McDonnell Issues Resounding "Heck Maybe"

If states don't create an exchange, then the federal government will step in and do it for them.

Supreme Court justices are polishing their judgment of the Patient Protection and Affordable Care Act (ACA) for release later this summer. In the meantime, states confront a dilemma. The law requires them to establish "exchanges" where individuals and businesses can shop for health insurance plans, the same way you can shop for travel packages on Travelocity.

If states don't create an exchange, then the federal government will step in and do it for them. This has led many Republicans to believe, erroneously, that they have a choice between having an exchange built to their liking—perhaps one that offers flexibility and a remnant or two of free-market economics—or a costly, bureaucratic blanket of regulatory excess.

But that's not the choice at all—because any state exchange must receive federal approval, and the Department of Health and Human Services has written hundreds of pages of rules that must be met to win such approval.

For instance, the exchanges must set insurance plan benchmarks. Those benchmarks have a bias toward bigness: They must be based on one of the three largest plans in the state for small groups, state employees, or federal employees.

The exchanges also will have a bias toward higher costs. Insurers cannot participate in the exchange unless they offer services in 10 essential health benefit (EHB) categories, from emergency visits to preventive care. According to an analysis done for Virginia by the accounting firm PricewaterhouseCoopers, "Health plans could modify coverage within a benefit category so long as they do not reduce the value of coverage….To the extent a health plan wishes to change a benefit, the value of the substituted benefit must be at least as high as that of the item being replaced." So much for the administration's oft-repeated claim that Obamacare would "bend the cost curve down."

Thus the real choice confronting states is between (a) a federally designed exchange paid for by the federal government, or (b) a federally designed exchange paid for by the state. And since running the exchange will be an expensive proposition—the one created in Massachusetts by Mitt Romney costs $30 million a year—the smart reply to Washington's mandate is that offered by the Cato Institute's Michael Cannon: "It's your stupid law, you implement it." States that do otherwise, he says, will simply "pay for the privilege of having their autonomy taken from them."

Nevertheless some states—chiefly those run by Democrats who are fine with Obamacare—are saluting smartly and charging up the hill. While those states are saying "Heck yes," others—Arkansas, Florida, Kansas, Louisiana, Oklahoma, and Wisconsin—have issued a firm "Heck no." If Washington wants an exchange in those states, then it will have to do the job itself—if it can. (The framework for the federal exchange hasn't been completed, and questions are being raised about whether Washington can get the job done in time.)

In between those positions sits Virginia, where Gov. Bob McDonnell has issued a resounding "Heck maybe." McDonnell helped kill legislation in the General Assembly authorizing the creation of an insurance exchange. But he also has taken a $1 million federal grant and is putting all the pieces for an exchange in place. "We're trying not to lose any time if the Supreme Court decision doesn't go the way the governor would like it to," Virginia health-reform director Cindi Jones told Bloomberg Businessweek.

This isn't surprising. On a variety of issues, McDonnell has tried to appease both the right and the left. He supported requiring an ultrasound before an abortion, but not if it was too invasive. He supported toughening voter-ID requirements, but then amended the measure in a way that, says The Washington Post, would render it "all but moot." He is sitting out the divisive fight over lifting Virginia's moratorium on uranium mining. Just the other day, he apparently changed his staunch pro-life position on abortion, perhaps to improve his odds in the Republican veepstakes.

Yet as noted above, even if the Supremes uphold Obamacare, states would be better off letting the feds do their own dirty work. Their corporate citizens would be, too. In any state with its own exchange, employers whose insurance plans don't meet federal benchmarks can be fined huge sums – as much as $3,000 per worker. But thanks to sloppy legislative drafting, those penalties will not apply in any state with a federally run exchange.

Nevertheless, Virginia's Health Reform Initiative is plowing ahead, laying the groundwork for a state exchange if the Supreme Court confounds expectations and upholds the law. As Jones, the Initiative's director, says, "We're working toward lining everything up except turning on the lights."

You could say this is just one more attempt by McDonnell to hedge his bets. And you could be right. Trouble is, this time the game is rigged—and any state that plays along is going to lose.

A. Barton Hinkle is a columnist at the Richmond Times-Dispatch,  where this column originally appeared.