Over the past year, 34 states have decided against implementing some, or any, parts of Obamacare's health insurance exchanges—and with good reason. As Cato Institute Health Policy Director Michael Cannon argues in his recent paper "50 Vetoes: How States Can Stop the Obama Health Care Law," states have the power to block many of Obamacare's most troublesome provisions and consequences simply by refusing to participate in the implementation process. Cannon's paper provides an array of reasons why state legislators should resist the law. Here are six:
1. Neither the exchanges nor the Medicaid expansion are mandatory. Obamacare's authors gave states the option of setting up exchanges. But they did not—and could not—make it mandatory, because the Supreme Court has has ruled that the Constitution does not allow the federal government to "commandeer" states into such actions.
2. The "deadlines" for choosing to implement the exchanges aren't real deadlines at all—so states can always create exchanges later if they choose to do so. States were originally told they had to submit their exchange proposals by November 2012. That supposed deadline was eventually pushed back to December and, earlier this year, the bureaucrat who runs the agency in charge of certifying the state exchanges, Gary Cohen, admitted "there is no deadline." States could get approval whenever they were ready. Indeed, one of the law's architects and key backers, MIT health economist Jonathan Gruber, recently told officials in Florida that there was no reason to proceed with exchange creation in 2014.
3. Refusing to create an exchange potentially protects a state's businesses from the law's employer mandate. Obamacare fines any business with 50 or more employees that does not offer health coverage of sufficient value—as determined by the federal government—$2,000 per employee (exempting the first 30 workers). The employer penalties, however, are triggered by the existence of the law's subsidies for private health insurance. And as Cannon notes, the text of Obamacare specifically states that those subsidies are only available in states that choose to create their own exchanges. The IRS has issued a rule allowing for subsidies in states that reject the exchanges, but a lawsuit is already under way to challenge it.
4. States also have the power to protect as many as 12 million people from the law's individual mandate—the "tax" it charges individuals for not carrying health insurance. Obamacare requires that nearly everyone maintain health coverage or pay a penalty—a "tax," according to the Supreme Court's decision upholding the law last year. But Obamacare also exempts individuals who would have to pay more than 8 percent of their household income for their share of their health insurance premiums. So if states bow out of the exchanges, and as a result the law's private insurance subsidies are no longer available, then the mandate will no longer apply to the low and middle income individuals who would have to pay more than 8 percent of their income to get health insurance. Cannon estimates that if all 50 states were to decline to create exchanges, a little more than 12 million low and middle-income individuals would be exempt from the law's mandate.
5. Collectively, states have the power to reduce federal spending by $1.2 trillion if they reject Obamacare's exchanges. The Congressional Budget Office estimates that the exchanges will dole out $1.2 trillion in subsidies for private health insurance by 2023. But if the lawsuit against the IRS wins, and the explicit text of the law prevails, then no state exchanges would mean no subsidies for private insurance—saving the entire $1.2 trillion.
6. States that agree to run their own exchanges will take the blame if they fail. It's not just that information about the exchange could arrive bearing the state's name and letterhead. It's also that state officials could end up on the hook with the public if Obamacare results in care being denied to the sick. And that, Cannon writes, is a real possibility. Because the law includes price controls that force insurers to sell coverage to the sick at less than it costs to insure them, insurers who provide the best care to the sick will soon attract large numbers of very sick individuals, and may suffer financially for it. Premiums will go up, and healthier individuals will avoid the plan. "In this way," Cannon writes, "the Act's community-rating price controls literally punish health plans that provide the most attractive coverage to the sick. The Act thus forces health plans into a race to the bottom, where insurers compete to avoid, mistreat, and dump the most vulnerable patients."