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If the Feds Like Their Exchange, They Can Keep It

Updated: Apr 13

In a classic Christmas film, a wise man once said that enrollment in the jelly of the month club was “

the gift that keeps on giving the whole year. ObamaCare is just the opposite: it’s the “gift” that keeps on taking from us, year after year. It has already caused problems for Arkansas. In the future, it will almost certainly plague the state in new ways. That’s because, pretty soon, state law will require our state government to create its own health insurance exchange. Right now, Arkansas operates under a health insurance exchange operated and paid for by the federal government. In 2016, however, the state must set up its own health insurance exchange, thanks to legislation passed in 2013. (As a technical matter, federal law requires a transition to a state exchange in 2015; a few months ago, however, the committee that was empowered to set up the state exchange decided to push the deadline a year into the future, which is to say 2016.) Why is this a bad idea? Let us count the ways:

  1. A state exchange could open Arkansas businesses to a huge ObamaCare tax. If the employees of a business purchase subsidized health insurance on a state health insurance exchange, that company is penalized through higher taxes. Under the language of the Affordable Care Act, these subsidies are only available through state-established health insurance exchange. Thus, only businesses located in states with a state-established health insurance exchange are liable for higher ObamaCare taxes. However, the Obama Administration interpreted the law to say that these subsidies are available to anyone, regardless of whether they live in states with a federal- or state-established exchange.

Several federal courts have already ruled against the Obama Administration’s interpretation. The U.S. Supreme Court will hear arguments about this case during 2015. If the Supreme Court upholds the language of the law (as opposed to the Obama Administration’s interpretation of it), then over 4,000 Arkansas companies would not be subject to the tax that comes with the employer mandate. This freedom from the employer mandate will only happen if the state refuses to establish its own exchange. To speak loosely, those who benefit from this freedom from mandates outnumber the Obamacare subsidy beneficiaries by roughly 10 to 1.

  1. A state exchange will be costly (and could be disastrous). Setting up a state exchange isn’t easy or cheap. That’s illustrated by a few of the states that have already opted to go with their own health insurance exchanges. Maryland is a prime example for how a state’s plans can go disastrously wrong. That state spent roughly $200 million on its exchange. That exchange had so many flaws that the state scrapped it and spent over $129 million to build a new one. If Arkansas goes forward with building its own exchange, perhaps it will learn from the mistakes of Maryland and other states. But keep in mind that Maryland officials thought everything was going to be fine before they launched their site.

There is some federal funding to build an exchange, although it’s uncertain what the new Republican Congress will appropriate in the future. Once the exchange is running, either Arkansas taxpayers or the exchange’s consumers will fund it. Either way, Arkansans are going to be paying for this exchange. Earlier AAI estimates of costs of $50 million a year were, in retrospect, too optimistic — about four months ago, exchange director Cheryl Smith told legislators that she planned to request $91 to $133 million to set up the exchange.

  1. A state exchange won’t allow for local control. Part of my driver’s education in high school was getting in a driver’s ed car for some real-road knowledge. I sat behind the driver’s seat, pressed the gas pedal, and steered the car. But our teacher, Coach Stark, was always in the passenger seat. He told me where to go, how fast to drive, how long to drive, and he had a special brake pedal on his side of the car. I was in the driver’s seat, but Coach Stark was in control of the car.

It’s the same thing with a state health insurance exchange. State officials will be running it, but all they will be doing is following federal orders. The federal laws and regulations governing a state exchange make it little more than a façade for a federal health insurance marketplace.

Any way you look at it, a state-run health insurance exchange is bad for Arkansas. In 2015, legislators and the new governor can give a late Christmas present to Arkansans: end the plans to set up a state Obamacare exchange. Notably, Conduit for Action recently provided model legislation to this end: perhaps Arkansas legislators who campaigned against Obamacare during 2014 will read it and then realize that opposing Obamacare entails more than signing amicus briefs and emitting windy speeches criticizing the federal government.

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