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Hope and Exchange

November 28, 2012

ObamaCare is due to land in a mere 10 months—about 300 days—and the Administration is not even close to ready, so naturally the political and media classes are attacking the Governors and state legislators who decline to help out. Mostly Republicans, they’re facing a torrent of abuse in Washington and pressure from health lobbies at home.

But the real story is that Democrats are reaping the GOP buy-in they earned. Liberals wanted government to re-engineer the entire health-care system and rammed the Affordable Care Act through on a party-line vote, not stopping to wonder whether it would work. Now that implementation is proving to be harder than advertised, they’re blaming the states for not making their jobs easier.

The current rumpus is over ObamaCare’s “exchanges,” the bureaucracies that will regulate the design and sale of insurance and where 30 million people (and likely far more) will sign up for subsidized coverage. States were supposed to tell the Health and Human Services Department if they were going to set up and run an exchange by October, but HHS delayed the deadline to November, and then again at the 11th hour to December.

Sixteen states have already said they won’t participate. Another 11 are undecided, while only 17 have committed to doing the work on their own. Six have opted for a “hybrid” federal-state model. That means HHS will probably be responsible for fallback federal exchanges in full or in part in as many as 25 or 30 states.

The opposition isn’t so much political as practical. Or rather, the vast logistical and technical undertaking to build an exchange helps explain why so many Governors resisted ObamaCare in the first place.

States have regulated the small business and individual insurance markets for decades (some well, others less so). Now they’re supposed to toss everything out for a complex Washington rewrite, which is still being rewritten. The exchanges will also help enforce the individual mandate and premium increases. They’ll also have to spend a ton of money. Ohio estimates it will cost $63 million to set up an exchange and $43 million to run annually, based on a KPMG study.

Most spending will go to information technology, in an era when many states still run Medicaid using paper forms and pneumatic tubes. These systems are supposed to allow consumers to review health plans online (or in person and by mail and fax), pick one and then ping HHS and the Internal Revenue Service to determine who is eligible for what subsidies. Private businesses spend years developing and refining such consumer software. States need to fund call centers to field queries and even hire “navigators” to actively encourage people to enroll.

The main problem is that states are being conscripted as federal contractors. HHS has declined to reveal basic operational details except to make clear that state-based exchanges won’t really be run by the states. “No matter which option is chosen,” as Scott Walker put it, “Wisconsin taxpayers will not have meaningful control over the health-care policies and services sold to Wisconsin residents.”

So if things don’t work voters will blame the Governors for decisions made in Washington. And when it turns out that ObamaCare’s costs are underestimated and its benefits exaggerated, they’ll have enabled an entitlement that many of their constituents oppose. The wonder is that any GOP leaders—ahem, Chris Christie and Rick Scott—are still playing Hamlet.

Partly that may be due to the insurance and provider lobbies, especially the hospitals. They’re furious that states might spoil the deals they cut with the White House and frantic for new revenue, which will only flow with the subsidies. (Note that health industry stocks rallied on President Obama’s re-election.) They’re also generally more powerful at the local level and favor state-run exchanges as easier to manipulate. But Governors who give in are setting themselves up as political fall guys, just as the insurers will be when premiums inevitably spike.

We suggested at first that states could try to spin straw into gold, ignore HHS and try to adopt a marginally less destructive approach. One state that tried is Utah, which built an impartial insurance clearinghouse in 2009 based on “defined contribution, consumer choice, and free markets,” as Governor Gary Herbert put it in a November letter to HHS.

Now he’s asking Washington to accept “Utah’s version of a health insurance exchange,” even though it clearly does not comply with Affordable Care Act provisions. HHS claims it is trying to be flexible, so this will be a useful test.

But the main reason HHS and ObamaCare partisans are trashing the state hold-outs is that the federal government isn’t any better equipped to make the plan a success. HHS’s reputation as one of the most dysfunctional agencies is notorious. To take one example, an ObamaCare-mandated update to a major computer network called the System for Electronic Rate and Form Filing, which governs insurance approvals, has been delayed by months.

HHS’s bandwidth is likely to be fried and its personnel overloaded by the workload of 25 exchanges or even 16. And the effort will be complicated by the serious legal questions and eventual lawsuits about the statutory authority of a federal exchange to dispense subsidies at all.

The Affordable Care Act barely passed and then barely survived Supreme Court review and the 2012 election. Now the entitlement is hurtling toward a truth-in-advertising moment and liberals are terrified that it won’t produce the results they promised. That was always likely given the central planning architecture of ObamaCare, but now the likes of Mr. Walker are declining to do their work for them and depriving them of scapegoats.

The day after ObamaCare passed, we invoked the “Pottery Barn” rule that Colin Powell once applied to Iraq: You break it, you own it. Washington is about to break it, and the states are saying they won’t be accomplices.