The problem with the governor’s health insurance exchange myths vs. fact sheet, released Jan. 18, is two-fold.
First, it ascribes as myth things that were never mythical in the first place. For example, no one has suggested that the governor is somehow championing Obamacare. And no one has argued that “everyone has to participate in an insurance exchange.” Therefore, some of the chief myths that the sheet attempts to debunk are bunk from the get-go. Second, the sheet is riddled with misinformation regarding what an insurance exchange would do, what the role of the state would be and what would happen if the state chooses not to create an exchange.
Here are some of the major points we’d like to correct:
Myth 1: The governor says, “Ignoring the law would invite increased federal involvement in our state affairs through regulation of our insurance markets, forfeiting the creation of jobs in Idaho to other states, adding to the enlargement of the federal bureaucracy and incurring federal fees for operating costs associated with running a federal exchange, such as the current proposal to charge insurance companies a 3.5 percent fee for each policy premium.”1
Fact: Choosing to not create a state insurance exchange does not invite increased federal regulation of insurance markets. In fact, the U.S. Department of Health and Human Services (HHS) has been clear and consistent on this particular point, telling states, “A Federally-Facilitated Exchange’s role and authority are limited to the certification and management of participating qualified health plans. Its role and authority do not extend
1 Each of the myths noted here come from the health insurance exchange myths vs. fact sheet, released by the Office of the Governor, Jan. 18, 2013.
beyond the Exchange or affect otherwise applicable state law governing which health insurance products may be sold in the individual and small group markets.”2
Fact: The federal bureaucracy is already enlarged. Nothing that Idaho does or does not do in regard to the state insurance exchange will alter this fact. Furthermore, enlargement of the federal bureaucracy is out of our hands as 25 states have already decided it would not be wise to create a state exchange.3 Enlarging our own state bureaucracy is very much under our control, however; and creating a state exchange will certainly have that effect.
Fact: Forfeiture of job creation in Idaho would come solely from the decision to create a state insurance exchange. Oklahoma contends in its lawsuit that businesses and individuals are shielded from the PPACA’s penalty provisions in states that do not have a state insurance exchange. The state is suing the federal government for failing to recognize this: Under the plain wording of the PPACA, the penalty provisions for individuals and businesses failing to adhere to the insurance requirements of the law only come into play in states that have chosen to have an insurance exchange.4 However, the Internal Revenue Service has written rules reinterpreting the plain wording of the statute, necessitating the state’s action. Furthermore, zero jobs are created when the government creates a new government bureaucracy or function. Rather, such programs siphon money from the economy. No exchange—federal or state—will create a single job.
Fact: The federal government has proposed a fee of 3.5 percent on premiums sold in the insurance exchange. This, of course, is a proposed fee, subject to change. And even HHS acknowledges that it may yet change, noting, that what states are charging for their own exchanges could influence the number adopted by the federal exchange. Specifically, HHS says, “for the 2014 benefit year, we proposed a monthly user fee rate that is aligned with rates charged by State-Based Exchanges. While we proposed that this rate be 3.5 percent of premium, it may be adjusted in the final Payment Notice to take into account State-Based Exchange rates.”5 States are charging a variety of fees. Nevada has settled on 1.7 percent.6 Minnesota has adopted a 3.5 percent surcharge.7 Finally, we don’t really know what Idaho’s surcharge would be, were the state to have an exchange. It will, of course need to charge something. Finally, we’d point out that HHS’ use of any surcharge at all is legally dubious. The agency claims that it has the ability to assess a surcharge
2 Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid, from HHS, Dec. 10, 2012. 3 Kaiser Family Foundation data as of Jan. 4, 2013. 4 State of Oklahoma vs. Sebilius and Geithner, Case No. CIV-11-030-RAW. http://tinyurl.com/apjeprj. 5 Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid, from HHS, Dec. 10, 2012. 6 “Oversight board approves fees for Nevada health insurance exchange,” Associated Press, Jan. 10, 2013. 7 “MN legislators introduce health-insurance exchange bill,” Business Journal, Jan. 9, 2013.
under 31 USC § 9701, which allows agencies to charge for a “service or thing of value”8 of which an insurance is neither.
Myth 2: The governor argues that federal insurance exchange is a done deal and a real thing: “The federal government has been working with contractors and vendors since the passage of the bill almost three years ago in preparation for the start date of January 2014. There is now a federal website available in preparation for enrollment in October of 2013 at www.healthcare.gov. Absent a state-run exchange, the state will be connected to a federal exchange.”
Fact: The creation of a website and even working with contractors and vendors does not equate to setting up and operating two dozen exchanges for the states that have opted out of creating their own. Per the U.S. Constitution, all congressional appropriations must originate in the House, where support for the health care law is slight, at best. There is certainly no guarantee that Congress will authorize hundreds of millions or even billions of dollars to set up federal exchanges in two dozen states in furtherance of PPACA.
Myth 3: The governor says “the states lost the lawsuit” against PPACA and “this is the law of the land and will be adopted whether or not the governor opts for a state or federal insurance exchange.”
Fact: There remain a number of issues with the law (including several related to the freedoms of conscience and religion) that have yet to be addressed by the court. There is and will continue to be litigation regarding this law for the foreseeable future.
Myth 4: The governor says, it is a myth that “there will be no impact to the state’s businesses if we allow the federal government to run the exchange” and says “only in a state-run exchange will stakeholders be able to fully participate in the creation and administration of the exchange.”
Fact: The states were never invited to participate in the development of the regulations governing state-run exchanges, so it is hard to imagine that the states would suddenly be granted “full participation” in the creation and administration of a state insurance exchange.
Fact: The federal government has never formally responded to the list of questions posed by Gov. Otter and other members of the Republican Governors Association, even though those questions were presented months ago.9
Fact: The impact to the state’s businesses will be significant if Oklahoma prevails with its lawsuit. In states that do not have a state insurance exchange, employers will be shielded from the employer health insurance mandates and penalties. Therefore, states that set up an exchange will be at a disadvantage to states that utilize the federal exchange, where mandate penalties and taxes are prohibited. Finally, states that set up an exchange prevent businesses from having the legal standing to sue over the issue raised by Oklahoma.
Myth 5: The governor says it is a myth that there is no flexibility in the administration of a state exchange. He adds that “Idaho currently follows thousands of rules and regulations imposed by the federal government in all aspects of governing the state. ... In cooperation with the federal government, there are numerous documented areas that he state will have the ability to make decisions in creating and administering the state-run exchange.”
Fact: Almost every function of a state exchange is governed by the federal government via regulations and statutes. From the design of the website to the operation of call centers to the handling of advance premium tax credits, the details leave little to the imagination of state regulators. There is simply no evidence to support the contention that Idaho will exercise any meaningful degree of control over a state exchange. Additionally, the rules are still being written and how much—if any—latitude the state will have if it creates its own exchange is totally up to the bureaucrats over at HHS who are in the process of churning out tens of thousands of pages of regulations, much to the dismay and frustration of state officials who are trying to keep up.10 True, Idaho does work with the federal government on a number of programs, some with more autonomy than others. The insurance exchange is most analogous to the food stamp program. Idaho only administers the program; it has almost no say in how that program operates.
Myth 6: The governor contends the Idaho Health Freedom Act does not matter any longer and that it is irrelevant in the context of a state insurance exchange.
Fact: As previously noted, the mere existence of a state insurance exchange makes the penalty provisions of the PPACA applicable. The Supreme Court's ruling does not negate the existence of Idaho's Health Freedom Act. It is still illegal for the state of Idaho to "effectuate" any penalty under PPACA, and creating a state exchange will directly allow the employer mandate of $2,000 per employee per year to take effect. 11 A federal exchange blocks that substantial penalty, not just in Idaho, but 13 other states with similar
10 “Delays on federal details leave states ill-prepared to open exchanges,” modernhealthcarecom, Jan. 19, 2013. 11 Idaho Health Freedom Act, Title 39, Chapter 90, Idaho Code.
statutes or constitutional protections.12 The only way Idaho can legally implement a state exchange is to repeal the Idaho Health Freedom Act.
Myth 7: The governor contends that we have to act now to create an insurance exchange, that by waiting “we will miss our opportunity for input during the design and implementation of the exchange” ... and that “it is more reasonable to be at the table, negotiating on behalf of our citizens, rather than risk more federal control of our health care and insurance industries.”
Fact: There is no limitation on when the state of Idaho can create a state exchange. Indeed, the statute and the regulations recognize this reality.13 In contrast to the fear mongering attached to the “now-or-never” rhetoric coming out of both the state and federal governments, Idaho can create an exchange this year, next year, or five years down the road. Opting to wait-and-see is a very viable option that will allow us to ride out the ambiguity of the still unfinalized federal rules and the uncertainty of pending litigation. We’d also, again, point out that nowhere did the federal government offer a “table” for the states to sit and negotiate the rules for state exchanges. None exists. Therefore, there is no “opportunity for input” and no “negotiating on behalf of our citizens.”
Wayne Hoffman is executive director of the Idaho Freedom Foundation.
12 “Obamacare is still vulnerable,” National Review, Nov. 9, 2012. http://tinyurl.com/capmvva. 13 See 45 CFR 155. Rule 155.106 defines the process for states wishing to create an insurance exchange after 2014.