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Should The Federal Government Encourage States To Build Robust Exchanges?

The Washington Post’s N.C. Aizenman has a good article today expanding on the argument that after the midterm elections, the greatest gain for opponents of health care reform will be felt in the states, where Republicans won control of 20 statehouse chambers. Azenman explains why:

It is up to states to run markets, known as “exchanges,” through which individuals and small businesses will be able to buy health insurance plans, often with federal subsidies, beginning in 2014. States will also oversee a mostly federally funded expansion of Medicaid to cover a far larger share of the poor.

Many incoming Republican governors made their antipathy to the law a plank of their campaigns. Tennessee Gov.-elect Bill Haslam denounced it as “an intolerable expansion of federal power.” Wyoming Gov.-elect Matt Mead promised to join 21 states contesting its constitutionality in federal courts. And Maine, one of the first states to set up a task force to implement the law, will now be led by Paul LePage, a tea-party favorite who vowed to work against the legislation and predicted that voters would soon see headlines about him telling President Obama to “go to hell.”

Such state leaders cannot completely block implementation of the law: If they are unwilling or deemed unready to run an exchange by 2014, the legislation empowers the federal government to step in with its own version. But the law does grant states a fair amount of discretion.The result, analysts say, is that two models are likely to appear: Democratic governors and legislatures are likely to emphasize vigorous regulation and government oversight, while Republican state leaders are likely to put greater stock in privatization and other free-market approaches.

You should read his entire piece to get a sense of how states can structure their exchanges, but the bottom line is this: “HHS has the final say” on what states can and cannot do. If they, for instance, allow every insurer to offer coverage or if only the most efficient issuers receive the benefit of participating in the new marketplace. But, Aizenman notes, “it could prove awkward for Secretary Kathleen Sebelius to turn down insurers backed by state governments.”

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Awkward, yes, but also important. After all, the federal government can guide and incentivize states to establish certain kinds of exchanges. Consumer advocates would generally like to see states follow the Massachusetts and California models, in which the exchange is governed by an authority that can bargain with insurance companies on behalf of consumers and require issuers to meet certain minimum standards. For exchanges to succeed, states will probably have to implement some version of this design and if I were in government, I’d argue that this something worth the ‘awkwardness’ of turning down “insurers backed by state governments.” Unfortunately, the actual people in government don’t seem to agree with me.