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Even Rebranded, Obamacare Exchanges Are Still Unworkable

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At last count, 26 states have rejected the idea of setting up health insurance exchanges that are part of the Affordable Care Act — a continued blow to the Obama administration’s scrambled efforts to get the nationwide exchange program up and running.

The Health and Human Services Department recently rebranded the exchanges, calling them “marketplaces.” But that hasn’t seemed to move the largely unpopular public view on them — and for good reason. Many states understand that setting up an ObamaCare exchange puts them in a risky position.

Under the exchange regulations, states do not gain any meaningful flexibility or advantage by operating their own exchange, as opposed to leaving the exchange up to the federal government. States simply become the vendors of HHS for taxpayer-subsidized, government-controlled health plans.

Some ObamaCare proponents argue states must set up exchanges to maintain control of their markets. But the healthcare law doesn’t preclude states from regulating insurers, including those participating in the federally run exchanges. States also can regulate the exchange “navigators” — workers who help guide patients through the exchange process to get a plan — through state professional licenses to ensure there is a level playing field with existing insurance agents.

Furthermore, there are huge costs for states that agree to set up an exchange. ObamaCare requires in 2015 that states setting up an exchange develop their own revenue source to fund the exchange operations. That could translate into state budgets devoting more stretched resources to the ObamaCare exchange, crowding out other vital programs like transportation and education, or creating new taxes for residents and businesses.

States that decide to forgo an exchange still face costs from Washington. HHS announced late last year that it would levy a 3.5 percent administrative fee on coverage sold through federally run exchanges. But when compared with the costs of running an exchange, estimates for opting out appear to be the cheaper option.

Meanwhile, choosing not to set up an exchange gets states off the hook for the exchange’s operational results. States that elect to operate an ObamaCare exchange signal they will take on responsibility for how well the exchange performs. And this comes as HHS is delaying the rollout of much-needed details on how the entire exchange program will operate. Each day without a roll-out ups the probability that the Obama administration will fail to get the exchanges open to the public by October.

Rather than rely on the federal government to succeed, states should hold back. If they aren’t satisfied with a federally run exchange, the law allows for states to come back and set up their own. So there is no rush to commit. Right now, it’s more practical for states to hold off on the exchange mania.

Recognizing the inherent risk and faulty foundation of ObamaCare’s exchanges is the first important step for states. The next is rejecting the proposed Medicaid expansion. There will be many who argue a Medicaid expansion, like an ObamaCare exchange, is a good idea. But the promises of no cost, more control and helping low-income Americans fall flat. Like the exchange, the Medicaid expansion threatens to usher in long-term costs, zero flexibility for the existing program and greater dependence on government-run healthcare.

Instead of acquiescing to a flawed law, states can lead the way with better alternatives to healthcare reform.

-Haislmaier is a senior research fellow in health policy studies at The Heritage Foundation.

First appeared in The Hill.

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