Mitch Daniels on Insurance Exchanges

Indiana Governor Mitchell Daniels delivers his...

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This is from Benjamin Domenich’s: The Transom. It’s remarks by Governor Daniel’s on Obamacare. I haven’t seen it elsewhere and as always, he makes a lot of sense (and quotes Calvin Coolidge).


At the invitation of the AARP and the Indiana Healthcare Implementation Working Group, I gave the following remarks to an Indianapolis audience of about 300 people yesterday, mostly including legislators, staff, and other interested stakeholders. Thanks to Mike Cannon and Jack McHugh for their help on a few points. I was the lone voice in a series of panels against the implementation of a health insurance exchange under Obamacare. It stirred the pot in the room a bit, which I liked. It also fulfills my personal goal of quoting Calvin Coolidge in every speech I give.

There are five chief reasons why I would counsel Indiana to choose to delay the implementation of an exchange under President Obama’s health care law.

The health care law’s status is in significant doubt.As you know, the crux of the law – its individual mandate – is currently pending review by the U.S. Supreme Court thanks to a lawsuit brought by 28 states (including Indiana). The law is supported by only 38% of Americans according to the latest poll data, and its individual mandate is opposed by 80%. Whatever the court rules, the impetus is there for major political changes to the law. This legislation is going to be reopened within the next Congress – either by Democrats seeking to correct its many flaws, or by Republicans seeking to undo the whole thing and replace it with something new.

The creation of a federal exchange is a hollow threat.A number of critical problems exist with HHS implementing a federal exchange. For one, there is no funding authorized in the law for federal exchanges – HHS would have to find the money elsewhere and likely will have to appeal to Congress as the cost rises and more states choose not to implement. Even more significantly, due to a drafting error, Section 1401 provides only for subsidies “through an Exchange established by the State under Section 1311.” This mistake means that the law does not authorize access to those subsidies – the chief reason for individuals to find the exchange appealing – under any theoretical federal exchange. Fixing problems like this, again, would require reopening debate on the law itself – a recipe for a major political clash in Washington.

Indiana would have little control.  Even those who supported and advocated for the exchange concept in Massachusetts and Utah have turned against the idea now that the rules and requirements have begun to emerge from Washington. The Heritage Foundation’s Ed Haislmaier wrote after initial regulations were released that “a state would now have no more real control over an exchange it set up than over one HHS established.” As the details come into focus, it appears Obama’s exchanges function more as delivery mechanisms for bureaucratic regulations and costly subsidies, and that a state level exchange is really just about the letterhead. As Louisiana’s health secretary Bruce Greenstein explained when they opted against implementation: “If we were to run it, it’d have the governor’s name on top of the letterhead for every letter to businesses and families announcing the increase in premiums.”

The exchanges are in significant flux.Richard Burkhauser at Cornell recently discovered the exchange subsidy costs were calculated based only on the affordability of individual coverage, not family plans. This means families aren’t eligible for subsidies as long as the breadwinner’s plan is affordable. This is a huge problem. If the law really does mean single coverage, you’re going to have several million people who aren’t going to get coverage they were expecting. If the opposite is true, then the exchanges are likely to cost as much as $50 billion to taxpayers each year beyond initial estimates. Employees may end up begging employers to make their coverage unaffordable, so their families can gain access to thousands of dollars in taxpayer funded subsidies in the exchanges. Either way, Congress is likely to be forced to address this issue – a fact complicated by the unique historical way it was passed.

Time is running out.  Implementing an exchange is likely to be delayed even for those states pushing forward with the idea. Just consider the sheer amount of tasks still left – including running a reinsurance and risk-adjustment program, funding and monitoring the “navigators” required to help citizens navigate the exchange, defining and monitoring network adequacy and anti-discrimination provisions, and forming plans on how you will fund the exchange starting in 2015. If you would like an example of how other states have done this, Oregon chose a premium tax of up to 5 percent. And that’s just the state level! You have to report on all of these steps to Washington and get the necessary approvals – and given how delayed the process has been at HHS, with lengthy rules which take up a lot of pages but raise more questions than answers, I question if it’s even possible to launch an exchange on time if you wanted to.

Industry and providers are increasingly expecting changes, and so should you. I have laid out pragmatic reasons why you should avoid implementation. I believe you may find that at the end of the day, you will have spent the taxpayer’s dime to implement a law that no longer exists, or is significantly reformed. Voters tend to dislike seeing their money wasted. But there is a moral argument here as well. You swore an oath to the Constitutions of Indiana and the United States, an oath that should give you pause if you decide to implement a law which may very well be found shortly to be in violation of that Constitution, or spend one dollar earned by the labor of another toward such a project, at a time when every dollar is needed. As Calvin Coolidge put it: “I’ve noticed that nothing I’ve never said has hurt me.” I maintain you have nothing to fear from an Obama exchange you’ve never built.

Personally, while not as big a fan of Daniels as some, he is, as always, a voice of reason, and he’s right, too.

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