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Exchange PoliticsOpposing Obamacare in Battleground States$

David K. Jones

Print publication date: 2017

Print ISBN-13: 9780190677237

Published to Oxford Scholarship Online: November 2017

DOI: 10.1093/oso/9780190677237.001.0001

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Exchange Politics and the Future of Health Reform

Exchange Politics and the Future of Health Reform

Chapter:
(p.134) Chapter 6 Exchange Politics and the Future of Health Reform
Source:
Exchange Politics
Author(s):

David K. Jones

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190677237.003.0006

Abstract and Keywords

This chapter examines the four key insights from the case study states, looking at the degree to which these lessons apply elsewhere. I ask what the Obama administration should have done differently in its intergovernmental negotiations with states and whether the decision to accept or reject control of an exchange matters. In other words, what are the policy implications of this decision? A Supreme Court case in 2015 would have dramatically raised the stakes of this decision, though the Court’s ruling in favor of the Obama administration ensures that any person with a qualifying income can receive financial assistance to purchase coverage on an exchange—regardless of their state’s decision. I conclude by examining the future of health insurances in particular, and health reform and U.S. federalism more broadly.

Keywords:   health reform, health policy, Affordable Care Act, Obamacare, health insurance exchange, federalism, state politics, governors, Tea Party, interest groups

Eminent retired political scientist Sidney Verba once remarked that if he were back in the classroom teaching on American government he would structure his course entirely around the ACA.1 The law is a window into nearly every aspect of policymaking in the United States, including the internal workings of Congress, the relationship between the executive and legislative branches, the role of the courts, the challenges faced by executive branch agencies during implementation, federalism, and the differences between states. We can now add long-term stability and policy vulnerability as a result of subsequent elections to the list given Donald Trump’s victory in 2016.

The opening sentence of this book described the ACA as the most significant health reform law enacted in generations. This is true. It is the largest increase of health insurance coverage in the United States since the creation of Medicare and Medicaid in 1965. The law has huge implications for a sector of the economy touching approximately 17% of the gross domestic product (Centers for Medicare and Medicaid Services 2016).

But it is also true that the ACA is a collection of disparate reforms (Béland, Rocco, and Waddan 2016) and that it is more like the culmination of decades of incremental reforms than a true overhaul of the US healthcare system. At the same time that they were celebrating the law’s passage in March 2010, many Democrats were disappointed that this was the best they could get. They understood that the reform accepted and built on the current system rather than make fundamental changes. To them this was (p.135) like putting Band-Aids on top of Band-Aids rather than truly solving the underlying problems. Even if fully successful, millions of people would still lack coverage and the government would not have significant leverage to keep spending down.

Congressional leaders appreciated that a health reform law would not accomplish anything if it was too liberal to win support from key stakeholders. The primary objective in designing the ACA was not necessarily to be the ideal solution to all the problems of US healthcare, but to thread the political needle to win enough support from Democrats to be passed while not attracting enough opposition from conservatives and key interest groups to be blocked.

Health insurance exchanges epitomize this mindset. This was a way to expand coverage that conservatives had supported for many years and in parts of the country as diverse as Massachusetts and Utah. As Ted Kennedy said at the bill-signing ceremony of the Massachusetts reform in 2006 that created the first statewide exchange, “when Kennedy and Romney support a piece of legislation, usually one of them hasn’t read it” (Miga and LeBlance 2012). That they both could live with this approach made exchanges a major part of the political blueprint for national health reform. Democrats thought Republicans would appreciate that one of the centerpieces of the reform emphasized competition and market forces rather than something resembling a Canadian-style single-payer system. Senator Max Baucus, chair of the powerful Finance Committee, desperately hoped to win support from prominent Republicans such as Chuck Grassley and Orrin Hatch. He compromised away the public option, meaning the only plans sold on the exchange would be operated by private insurance companies rather than the government. To make the reform even more attractive to conservatives, Senate Democrats allowed for exchanges to be run at the state level rather than create a single national exchange run in Washington, DC. These compromises were enough to keep moderate Democrats on board, but they were not enough to win over even a single Republican in Congress.

Democrats were so focused on the politics of enactment that they paid less attention to anticipating the politics of implementation. One of the main reasons the launch of the exchanges was put off until 2014 was to keep the ten-year projections of the ACA’s costs down because the Congressional Budget Office only estimates a bill’s fiscal impact for a ten-year period. The fight over exchanges likely would have looked very different if states had only been given two years to launch an exchange instead of nearly four. State leaders would have complained about needing more time, but opponents would have had less opportunity to obstruct.

(p.136) Supporters of the ACA figured they could worry about implementation later, and that these challenges would not matter anyway if they could not get the law through Congress in the first place. In any case, the politics of implementing exchanges were not expected to conflict with the politics that led to the ACA’s passage. Any resistant states would be motivated by the preemption threat that the federal government would step in and run the exchange for them. State leaders want flexibility and would likely welcome the large amounts of money available from the federal government. Virtually every state was expected to create its own exchange.

This was a major miscalculation. Instead, opponents of the ACA used state flexibility to perpetuate obstructionism. State leaders initially cooperated on the exchanges while fighting the individual mandate and Medicaid expansion in court. But exchanges soon became the primary front in the larger battle to block the ACA. Leading opponents believed the federal government lacked the will and capacity to follow through with its threats. They could topple the mandate and the rest of the law if enough states refused to cooperate on the exchanges. Michael Cannon of the Cato Institute argued that refusing to pass legislation to set up an exchange is “the most powerful blow that a state can strike against Obamacare” (Kaplan 2012) and that officials who signed the lawsuit and accepted exchange grants were violating their oath of office by implementing a law they believed was unconstitutional (Mooney 2011).

The stories in Idaho, Michigan, Mississippi, and New Mexico illustrate what happened when opponents responded to this call to arms. Obscure procedural processes such as the Mississippi Personnel Services Contract Review Board’s consideration of contracts with information technology (IT) vendors became part of a national fight against Obamacare. Opponents were amazingly effective, defeating the largest and most powerful interest groups in Michigan, Mississippi, and thirty-two other states.

What Happened?

The previous four chapters examined what happened in the last two states to opt for retaining control of an exchange (Idaho and New Mexico) and the two that came the closest but gave up control to the federal government (Michigan and Mississippi). Partisanship is a major element of the fight over exchanges in these states, but is not an adequate explanation for what happened. In other words, it is not enough to say that states led by Republicans decided not to create an exchange because they oppose Democrats and did not want to give President Obama any victories. This was certainly true for (p.137) a lot of Republicans, but this simplistic view obscures the complexities of state politics and infighting on the right. The most significant division in many states was not between Democrats and Republicans, but within the Republican Party.

Four key factors explain what happened in these states: governors, the Tea Party, pockets of expertise, and leadership. How similar were these states to the rest of the country? I now turn to these four lessons to look at how they apply in these states and elsewhere. Most of the rest of the states were more like Michigan and Mississippi than like Idaho and New Mexico, but these latter states provide lessons on what could have been elsewhere.

Governors

First, governors were the most important actors within each state’s fight over a health insurance exchange. Exchange legislation succeeded in Idaho largely because of the aggressive involvement of Governor Butch Otter. The other side of the same coin is that no state created an exchange without the backing of its governor, meaning an unsupportive governor could block an exchange. A state-run exchange was likely in Mississippi until Governor Phil Bryant got in the way. Elsewhere, the idea of creating an exchange in Florida and Louisiana was dead when governors Rick Scott and Bobby Jindal returned exchange grants. Some state leaders tried to keep an exchange alive against the governor’s opposition, such as the independently elected Republican insurance commissioner Sandy Praeger in Kansas. Just as in Mississippi, there was very little she could do without the governor’s support.

However, governors are not omnipotent. They vary significantly in their ability to advance an agenda (Berch 1992, Dukakis 2001, Beyle 2004). Rick Snyder’s failure in Michigan shows that although necessary, a governor’s support was not sufficient to create a state-based exchange. A handful of other governors, such as Democrat Bev Purdue in North Carolina and Democrat Pat Quinn of Illinois, supported a state-based exchange but were unable to win approval from their legislatures.

Governors are in a difficult position. They are largely held accountable by the public for state policies, yet legislators generally hold a monopoly on the power to introduce, amend, and pass laws. The only formal legislative power many governors hold is reactive—the ability to veto or sign bills passed by the legislature (Kousser and Phillips 2012). Even this authority varies by state, with forty-three having line item veto powers and (p.138) thirty-seven being able to reduce the budget without legislative approval (Weissert and Weissert 2012).

Governors could have sidestepped the legislature entirely, creating an exchange by executive order. Governors in Kentucky, New York, and Rhode Island did just that after their legislatures failed to act. However, decisions made this way are vulnerable to being superseded by legislation or a change in gubernatorial power. The option of creating an exchange this way was technically available to every governor, though the political feasibility of this approach varied by state. At least eight state legislatures specifically forbade their governors from creating an exchange without its approval (Bagley and Jones 2015). As a result, governors supporting the creation of an exchange were severely limited in their formal powers to do so on their own.

Tea Party Power

Second, one of the most dramatic and unexpected aspects of the fight over health insurance exchanges is that traditionally powerful interest groups struggled so intensely against the Tea Party. Interviewees said they could not remember a single issue that united insurers, hospitals, providers, and consumer advocates like health insurance exchanges. This coalition included state-level groups typically aligned with Democrats and Republicans, which many hoped would give both sides cover. This book provides an in the trenches view of how the Tea Party operated within states to influence policy.

Interest groups were particularly active in support of an exchange in Idaho and Michigan. Groups in Michigan formed a loose coalition but did little to coordinate their efforts or to influence broader public opinion to the same degree as in Idaho. The same types of groups were involved in Mississippi but were not organized and engaging in coordinated lobbying to the same degree because the decisions were being made within the Department of Insurance rather than in the legislature. There was no need to lobby, since they were all at the table via the commissioner’s advisory board.

Republican legislators were expected to be on the same page as the major interest groups in their states, since the exchange could be framed as a conservative idea, promoted competition, put people in private rather than public plans, and prevented federal preemption. The initial reaction from state-level Republicans suggested that this would work. They strongly opposed the individual mandate but saw the exchanges as a separate issue. (p.139) This changed profoundly after the 2010 elections in which the Tea Party played a major role in the rightward shift across the country.

Even so, many Republican governors in 2011 initially stood up to the Tea Party and still supported creating an exchange at the state level. Newly elected Governors Sam Brownback (R-KS), Mary Fallin (R-OK), and Scott Walker (R-WI) said they would accept the large innovator grants their states had received under the outgoing administrations. The Department of Health and Human Services (HHS) refused to award the $31.5 million grant to Kansas until Governor-Elect Brownback would commit to cooperate. The Obama administration wanted to spare itself the embarrassment of a new Republican governor refusing a grant and likely would have quietly denied the application if Brownback opposed. He gave his support in December 2010 before taking office, and the grant process continued (McClean 2010).

Governor Brownback—who had voted against the ACA a year earlier as a US Senator—told a frustrated Tea Party leader in Kansas that he accepted the grant “not to do Obamacare—I am not supportive of us doing Obamacare—but to use that to do an exchange that provides a market mechanism because I believe we can use more market forces in health care” (Cauthon 2011a). Governor Fallin told Oklahoman conservatives almost the same thing, that “[u]nlike the federal exchange Washington may try to force on us, the exchange we are trying to build offers a positive, free-market alternative to the big government, tax-and-spend plan that is the PPACA.” Both returned their grants within months after Tea Party pressure intensified.

Scott Walker of Wisconsin held on a little longer. In December 2011 he announced that he was not returning the $38 million grant the state had received, but was stopping all planning. Meanwhile, Walker’s opponents collected enough signatures to trigger a recall election. He was under enormous pressure to raise money from conservative leaders who adamantly opposed Obamacare (Pilkington 2016). Local Tea Party activists mailed him strings to symbolize the burden of receiving federal dollars. Governor Walker announced that he was giving back the innovator grant to HHS two days after the signatures were delivered (Jones, Bradley, and Oberlander 2014).

Governor Walker’s reversal epitomizes an important aspect of the Tea Party’s influence, that it is both grassroots and national (Skocpol and Williamson 2012). The Tea Party is a social movement that in many ways acts like an interest group. But it is different in that it is not a private interest with a hierarchal structure; there is no such thing as THE Tea Party. Instead, it is a collection of decentralized groups of activists. Their (p.140) influence is largely through local politics, taking over county and precinct party organizations, regularly attending coffee hours and open houses held by local legislators. Walker seemed to be influenced both by the strings he received from grassroots activists and the need to ask wealthy conservatives around the state and around the nation for money.

Skocpol and Williamson (2012) explain that one of the most important consequences of the Tea Party movement has been the “populist boost given to professionally run and opulently funded right-wing advocacy organizations devoted to pushing ultra-free-market policies.” Every state has a conservative think tank that also behaves much like an interest group, although they are not registered lobbyists in every case. These groups are loosely connected through a national umbrella organization, the State Policy Network.

External organizations played an important role in fueling the Tea Party’s momentum and influence over the exchange debate. Conservative think tanks in Idaho (the Idaho Freedom Foundation), Michigan (the Mackinac Center for Public Policy), and Mississippi (the Mississippi Center for Public Policy) served as de facto leaders of the Tea Party. They did not lead meetings, but they educated citizen activists on the legislative process and provided the data and reports for them to use when contacting legislators or writing blog posts. National groups such as the Cato Institute, ALEC, the Heritage Foundation, and Americans for Prosperity played a similarly important role for these state groups and local activists, providing expertise—and in some cases money.

National conservative organizations did more to inspire and mobilize state-level groups than their liberal counterparts. Families USA focused more on the Medicaid expansion than on insurance exchanges. The most prominent state-level groups supporting an exchange were consumer advocates, who in most cases were part of the coalition of interest groups lobbying for local development of the exchange. But there was no liberal parallel to the Tea Party to do the grassroots work. Even if there had been, this issue may not have excited them much, since the consequence of inaction would have been a greater role for the Obama administration. This is a tradeoff that liberal advocates maybe could have lived with, particularly in states run by conservatives.

The Supreme Court’s decision in Citizens United v. Federal Elections Commission (2010) made it easier for private donors to spend large amounts of money on campaigns. Billionaire brothers David and Charles Koch are two of the most prominent spenders in the political debate surrounding the ACA. They move money through multiple layers of organizations, making it very difficult to know exactly whom they are giving (p.141) money to and how much they have spent (Barker and Meyer 2014). However, many states had conservative organizations with explicit or rumored connections to the Koch brothers. They are reportedly major contributors to the State Policy Network of conservative think tanks that became influential in many places (Kopan 2013), including Americans for Prosperity, which played a major role in opposing the exchange in Michigan.

The story of Sam Brownback in Kansas is another example of the informal but mutually reinforcing relationship between local Tea Party activists, state-level groups, and national conservative organizations. Governor Brownback appeared willing to resist pressure to return his grant until at least nineteen Kansan legislators, his chief of staff, and his policy director attended ALEC’s annual meeting in early August. This was where a leader from the conservative Heritage Foundation called for “an unrelenting fight [against Obamacare]” with “house by house, floor by floor, room by room combat” (Mooney 2011). Governor Brownback announced he was refusing the grant money days after his staff members and legislators returned from the ALEC conference.

Pockets of Expertise

Third, differences in institutional design shape the decision-making process, which in turn greatly affects the political strategies and tactics used by stakeholders. Steinmo and Watts (1995) argue that scholars and pundits are missing the big picture in their analysis of why certain policies are adopted and others are not. Echoing the phrase used by Bill Clinton’s strategists in 1992, they write, “it’s the institutions, stupid.” Similarly, Immergut (1992) writes that the analysis of policymaking should focus more explicitly on institutions and procedures, since “they select the groups whose views will be represented and they shape demands by changing the strategic environment in which the demands of groups are formulated.”

Decision-making over the exchanges was particularly fragmented compared with other parts of the ACA, such as the Medicaid expansion, premium rate review, and the development of a medical loss ratio (Béland, Rocco, and Waddan 2016). This gave the Tea Party and opponents of an exchange a distinct advantage because it is much easier to block a proposal in fragmented policymaking than to successfully adopt one (Steinmo and Watts 1995, Oberlander 2003, Weissert and Weissert 2012). To succeed, proponents of an insurance exchange needed to win in multiple committees, multiple chambers, and multiple branches of government. On the (p.142) other hand, Haislmaier’s “house by house combat” only required succeeding at one of these veto points.

In some cases, policy legacies—similar to the concept of path dependence—changed the nature of the institutions themselves and affected the range of options available (Béland, Rocco, and Waddan 2016). The debate in New Mexico would have played out very differently if Governor Martinez and her allies did not believe they could use legislation passed in 1994 to create the type of exchange they wanted without approval from the legislature. The case in Mississippi was similar in that the debate was dramatically shaped by two unique aspects of the state’s institutions: the insurance commissioner is independently elected and did not believe he needed the governor’s support and a series of laws broadening the scope of the state’s high risk pool may have allowed Commissioner Chaney to create an exchange without new legislation.

Certain institutional conditions enabled so-called “pockets of expertise” to play an important role in navigating this process (Burns et al. 2008). These are leaders with particular policy knowledge and political clout who were looked to for guidance. The Idaho case suggests that such pockets of expertise are a key part of a strategy to overcome Tea Party opposition.

Two facets of legislative capacity shape who is empowered to make decisions and may affect the likelihood that pockets of expertise will emerge. First, nearly everyone interviewed in Michigan believed term limits to be enormously consequential, resulting in legislators having little institutional or policy knowledge. There were no clear leaders on health policy that Republicans in the Michigan legislature could look to for guidance. The Michigan Speaker was only in his third year in elected office, and no one in leadership in either chamber had been in their role for very long. By contrast, the lack of term limits in Idaho means that on average, the leadership of the Idaho legislature has been in office for ten years. As a result of their relative longevity, legislators in Idaho have developed knowledge of their niche issues and of the legislative process as well as deep relationships.

Fifteen states place limits on how many terms their legislators are allowed to serve, generally restricting them to six to twelve years (Table 6.1). In some states, the clock resets if the legislator changes chambers or is out of power for a certain period. In other states, there are lifetime limits preventing the legislators from ever serving again (NCSL 2013). The term limit movement took off in the early 1990s, passing by directive initiative in twenty of the twenty-two states that voted for them, and being instituted by statute in two other states. Between 1997 and 2004, the state supreme (p.143) courts in Massachusetts, Oregon, Washington, and Wyoming overturned their state’s term limits, while the Idaho and Utah legislatures repealed theirs (Mooney 2009).

Table 6.1. Term Limits in State Legislatures

State

Year Enacted

House

Senate

Limit

Year of Impact

Limit

Year of Impact

Maine

1993

8

1996

8

1996

California

1990

12a

1996

12a

1998

Colorado

1990

8

1998

8

1998

Arkansas

1992

6

1998

8

2000

Michigan

1992

6

1998

8

2002

Florida

1992

8

2000

8

2000

Ohio

1992

8

2000

8

2000

South Dakota

1992

8

2000

8

2000

Montana

1992

8

2000

8

2000

Arizona

1992

8

2000

8

2000

Missouri

1992

8

2002

8

2002

Oklahoma

1990

12a

2004

12a

2004

Nebraska

2000

n/a

n/a

8

2006

Louisiana

1995

12

2007

12

2007

Nevada

1996

12

2010

12

2010

(a) In California and Oklahoma, a legislator may serve a total of 12 years in the legislature during his or her lifetime. The total time may be split between the two chambers, or spent in its entirely in a single chamber. Before 2012, California’s limits were identical to those in Arkansas: six years in the assembly and eight years in the senate.

Advocates argue that term limits make legislators more responsive to their constituents, nontraditional candidates better situated to run, the seniority system weaker, and the relationship between legislators and special interests weaker, and that state spending would decrease as a result (Greenberg 1994, Masket and Lewis 2007, Basham 2011). The evidence supporting these arguments is mixed at best. Instead, studies show that under term limits, legislators are less beholden to constituents in their districts (Carey et al. 2006), in part because they are more likely to run for higher office (Powell 2000, Lazarus 2006). The number of bills introduced has spiked as legislators have less time to make their mark (Kousser 2004), resulting in increased state spending (Erler 2007). Under term limits, there are more lobbyists and they exert more influence in the legislative process (Mooney 2005). The power of legislative leaders has diminished (Apollonio and La Raja 2006), putting the executive branch in a stronger position relative to the legislature (Carey et al. 2006). Given all these consequences of legislative term limits, bipartisan negotiation and consensus building has been more difficult (Sarbaugh-Thompson et al. 2006).

(p.144) Second, the amount of time a legislature stays in session varies from state to state and affects the ability of politicians to develop expertise (McDonough and McGrath 2001, Squire 2007, Burns et al. 2008). Most state legislatures only meet for part of the year. Thirty-nine states specify a limit on the length of their session, with seventeen of these having different limits in alternating years (NCSL 2013). Texas—the state with the second-highest population—has a legislature that only meets every other year. With the exception of Kentucky, Louisiana, and Virginia, states with different session lengths have the longer session in odd numbered years, resulting in shorter sessions during election years. Since Louisiana and Virginia hold their legislative elections in odd numbered years, the effect is the same. In states such as New Mexico, the legislature is restricted in alternating years to only considering bills amending the budget and is not allowed to consider bills on new policy such as creating a health insurance exchange.

Although longer sessions may increase the likelihood that legislators develop expertise, the fight over health insurance exchanges suggests that shorter sessions might ironically increase the influence of anyone who has expertise. The length of session, which is correlated to the amount legislators receive in salary, affects who can serve. Legislators need to wait until they retire or have a good day job to return to if they are in a state with short sessions. Approximately 2% of state legislators self-identify as working in insurance (Ehrenhalt 2015). They might have greater influence in the states with the least professionalized legislatures. The year-round legislative calendar therefore may compound the problem of inexperience and ignorance, limiting the amount of real-world experience legislators bring. Even the legislators themselves described bewilderment that such important health policy decisions were being made by people with so little health policy knowledge. The fact that staff support is more limited in the supposedly less professionalized states (NCLS 2009) might increase the degree to which they rely on colleagues they believe have developed expertise on an issue.

The general lack of expertise in the legislature on health policy gave some interest groups a greater role than they might have had otherwise. This seems to have amplified the ability of the Tea Party and conservative groups to shape the narrative. The role of interest groups was different in New Mexico, where there were not loud voices opposing the exchange. Legislators with the most expertise retired before the 2013 session, leaving a vacuum of knowledge about health policy in the legislature. This void was filled in part by people like Gail Evans of the Center on Law and Poverty, who legislators say was their chief negotiator in conversations with the (p.145) governor. Governor Martinez had a point person, Matt Kennicott, coordinating the work being done by many people within the governor’s office, multiple state agencies, and in the Office of Health Care Reform. Each of these people worked full-time and year-round. By contrast, legislators had minimal support and were in session only a few months per year. Consumer groups like the Center on Law and Poverty helped legislators make up the gap in expertise and attention. Interest groups aligned with the governor, such as the insurance industry, did not need to play the same role because the same need did not exist.

In addition to affecting the development of expertise, the timing of legislative sessions greatly shaped the contours of the debate in each state. The Mississippi legislature did not have an opportunity to weigh in on the exchange debate after its 2011 session because it did not meet again until well after Insurance Commissioner Chaney had begun planning. Similarly, the New Mexico legislature only had two 60-day windows to act between the ACA’s passage in March 2010 and the beginning of open enrollment in October 2013. The first of these, in January through March 2011 was so early that the full intergovernmental context was not yet clear. This session also came immediately after Governor Martinez took office and before many people felt that she had her legs under her (Interviews 2013–2014). Had legislators been able to negotiate with her more fully before the start of the session, they might have chosen to advance a more modest bill that would have won her approval. After Governor Martinez’s veto of SB 38 in 2011, the legislature did not have a serious opportunity to weigh in until the run-up to the 2013 session, leaving her in full control of the process until then. At that point the decision to run an exchange was too late, because there was not enough time to do everything necessary to avoid reliance on the federal government.

Federal leaders miscalculated the importance of the confluence of expertise and institutional capacity throughout the intergovernmental negotiation over health insurance exchanges. The Obama administration should have appreciated by mid-2012 that the timing of state legislative sessions worked against them (see Table 6.2). Of the states that had yet to create an exchange, only seven would still be in session after the Supreme Court released its ruling in NFIB v. Sebelius. Because the final level 2 establishment grant deadline was June 29, any state wanting to consider an exchange after that point would need to spend its own money. Even after the grant deadline was extended, governors in red states were unlikely to stick their neck out to create an exchange while the legislature was out of session until January or February 2013. (p.146) (p.147) (p.148)

Table 6.2. Length of State Legislative Sessions in 2012

Exchange Politics and the Future of Health Reform

Exchange Politics and the Future of Health Reform

Leadership

The fourth insight from the states highlighted throughout this book is the importance of leadership. This is similar to the first point, which describes gubernatorial leadership as being particularly important. What I am saying here is more of a theoretical point, that two people facing similar environmental constraints and incentives may arrive at different conclusions and differ in their ability to build a coalition. This may seem obvious, but it is very difficult for political scientists to model differences in leadership capacity and judgment. Most examinations to date for why states have made certain decisions about the ACA use quantitative methods that abstract institutions such as the legislature and the governor to a single variable. This has value, but fails to capture the emotion, drama, and personalities behind these decisions.

For example, Phil Bryant made different decisions as governor than Haley Barbour said he would have made had he still been in office (Interview January 2014). Many Republicans in Idaho said they would have fought the exchange had they been governor instead of Butch Otter. Governor Otter was particularly effective at winning support for an exchange in Idaho. He made key strategic decisions such as putting his name on the legislation, having his chief of staff introduce the bills, and coordinating the stakeholder coalition through his office. Even this would not have the same effect if done by a different governor. Enough Republicans were wary of crossing Otter that they went along with him in a way that did not seem possible for governors elsewhere. Again, this might seem like stating the obvious, but the story of health insurance exchanges makes it clear that charisma, charm, personality, guts, and relationships matter tremendously in politics and in ways not easily built into quantitative statistical models.

What Should the Obama Administration Have Done Differently?

One reading of this book is that health insurance exchanges represent a major disappointment for the Obama administration. They tried to convince every state to create its own exchange, yet only 16 did. Approximately $1 billion was given to states that ultimately rejected control (Centers for Medicare and Medicaid Services [CMS] 2014). Many of the most supportive states, including Hawaii, Oregon, and Maryland, spent hundreds of millions of dollars trying to build websites that ultimately did not work. (p.149) Even Massachusetts—whose exchange served as the model for the ACA—struggled intensely during the first year of enrollment.

The challenges in these states may reflect the inability of government to manage large IT projects more than a specific failure by the Obama administration. A number of people interviewed said that one of the most important lessons from the exchanges is the challenge government has with managing vendors to do IT and other implementation activities (Interviews 2015–2016). This is a different question from the one I address of why so few states decided to create their own exchange—but they are closely intertwined. The administration spent a lot more energy and time trying to convince states to create an exchange than expected, complicating their planning for October 2013, when the first open enrollment period would begin. Many people at the state and federal level feel this contributed—along with not having been allocated any money to operate exchanges—to a disastrous rollout in October 2013, when Healthcare.gov tried to go live in many more states than it initially expected. They feel that key federal leaders were so focused on the intergovernmental politics that they did not hear—or did not sufficiently empower—people who were warning that the website would not be ready (Interviews 2014–2016).

The Obama administration repeatedly faced a catch-22 over how to deal with states. If it held firm to deadlines and expectations, opponents would accuse it of ignoring local needs and being too rigid. When deadlines were extended and flexibility was given, opponents pushed back further, stalling until after the Supreme Court ruling in June 2012 and the presidential election in November 2012. They saw the repeated extensions as evidence that the administration was bluffing and incapable of following through with its threats of preemption. But HHS feared that doing anything to prepare for the possibility that they would be running dozens of exchanges would undermine their efforts to convince states to comply. Many of the most dramatic moments highlighted in this book—such as the feud between Mississippi’s commissioner and governor or the vote by the Michigan House Health Policy Committee—would not have happened had the Obama administration been firm on its deadlines, because states would have run out of time to make decisions.

This raises the question of what the Obama administration should have done differently in dealing with states. However, even with hindsight it is unclear whether it would have been better to hold firm to the deadlines. The problems with preparing for exchanges may have been more fundamental than this. In the wake of the troubled rollout of the federal exchange in the fall of 2013, the Washington Post published a memo Harvard economist (p.150) David Cutler (2010) had written three years earlier warning that the ACA’s implementation was off track. He argued that HHS was a deeply flawed organization and that a separate entity should be created to bring together government and industry leaders to oversee implementation.

Michael Doonan (2013) similarly called for the creation of a “Center for State-Based Health Exchanges” to work closely with a wide variety of stakeholders to “foster collaboration, align incentives, share information, and document and publicize successes.” These proposals likely would have made the Obama administration’s oversight more efficient and improved planning of the federal exchange, potentially avoiding the disastrous early days of open enrollment. But this would not necessarily have influenced more states to decide to create their own exchange.

The Obama administration, along with the reporters and academics writing about this negotiation, should have better appreciated the complexities of state politics in their outreach, including the importance of legislators and pockets of expertise. Regular channels were developed by federal leaders for constant communication with the governor’s office and/or a designated agency in each state. By definition of HHS’s rules, no exchange could be created without a governor’s approval. However, Michigan and Mississippi illustrate that gubernatorial support was not enough.

HHS took phone calls from legislators, but did not seem to have a strategy to reach out to them directly. This reinforced the asymmetry in expertise between bureaucrats and most legislators, putting pressure on agency officials to “educate” the politicians. At the same time, federal officials connecting directly with legislators would have created problems with state executive branch leaders, who would view this as meddling. It likely was not worth the risk for HHS that they would lose a governor. This is a tough situation to navigate for federal officials trying to encourage state cooperation.

Complicating the picture further is the observation by a number of people involved that the different parts of the federal government were not always on the same page (Interviews 2011–2016). The Center for Consumer Information and Insurance Oversight (CCIIO) within the Department of Health and Human Services was the primary contact for most state leaders working on creating an exchange. But many of the most important decisions were made by the White House. The denial of Insurance Commissioner Mike Chaney’s exchange proposal in Mississippi suggests that strong connections between legislators and CCIIO might not be enough because White House officials might make different decisions anyway.

(p.151) Does It Matter?

This book is about how states decided what type of exchange to establish, including whether to run their own exchange or default to the federal government. It is worth reflecting on whether this choice matters. One way to look at this is to examine how well states did at signing people up for insurance. Some of the most resistant states were in the top ten in terms of the percentage of eligible people who enrolled in the first year, with Florida at fourth, Michigan at sixth, Maine at eighth, and North Carolina at ninth. Idaho and Michigan took divergent paths on the question of whether or not to create an exchange, yet signed up essentially the exact same proportion of eligible residents (37.7% in Idaho vs. 37.6% in Michigan). Eight states that chose to run their own exchange finished below the national average, including four of the worse ten (KFF 2014c). Similar patterns were seen in subsequent years.

Buried in these numbers are some reasons why high enrollment may still be easier to achieve for states that chose to run their own exchange. Looking beyond the top 10, Blumberg, Buettgens, and Holahan (2015) found that state-based marketplaces as a whole enrolled 76% of the projected population in the first year compared to 54% in states with a federally facilitated marketplace (note the distinction between eligible population and projected population). One reason may be that the ACA allows the federal government to give state-based exchanges larger grants to help with enrollment and consumer outreach. Community organizations in the thirty-four states that rejected control received a combined total of $67 million for the first year of enrollment, for an average of less than $2 million per state. By contrast, California and Maryland each spent $37 million and $24 million on outreach for the same period (Jost 2013).

Enroll America, an organization run by former Obama operatives, ran aggressive enrollment campaigns in some of the states that rejected control of an exchange. As in a political campaign gearing up for an election, they hired people to go door to door signing people up for coverage. They targeted states with large numbers of uninsured people, including some that had voted for President Obama in recent elections such as Florida and Michigan (Somashekhar 2013). This may help explain why these states finished in the top ten of enrollment in 2014, although this did little outside states targeted by Enroll America and it is uncertain whether this is sustainable in the long term.

Enrollment in and of itself is not the only way an insurance exchange should be judged. State-based exchanges are better able to innovate and tailor their efforts. They can develop more stringent requirements for (p.152) qualified health plans. States with their own exchange may have more robust competition because insurers are more willing to participate. Interviewees in some states—such as Mississippi—say that insurers who chose to not sell plans in the federal exchange likely would have participated had the state been in charge (Interviews 2014–2015). State exchanges also have lower user fees than the federal exchange and are better positioned to solve problems as they arise. Leaders in Idaho describe a night and day difference between the experience of fully running their own exchange in 2015 compared to relying on the federal website in 2014. There was previously very little they could do to help consumers who had mistakenly lost benefits or had some other problems. Once the state took over they were able to look up information in their own systems and quickly resolve any problems (Interviews 2014–2016).

King v. Burwell

The Supreme Court’s decision in November 2014 to consider King v. Burwell dramatically increased the stakes of the fight over health insurance exchanges and would have provided a definitive answer to the question of whether it mattered who runs an exchange. The case was the culmination of the second major line of attack on Obamacare after the Supreme Court ruling and reelection of President Obama in 2012. The argument hinged on the interpretation of four words in the law. The ACA states that people can receive tax credits if they buy insurance through an exchange “established by the state.” Should the administration interpret this to literally mean that no consumer is allowed to receive financial assistance from the federal government if they live in a state that refused to create an exchange?

Many experts dismissed the case as lacking merit. Jeffrey Toobin (2015) described it as “a shameful and cynical exercise which illustrated the debasement of the contemporary legal movement.” Nicholas Bagley (2015) compared opponents to Amelia Bedelia, the character in children’s books who misunderstands everything by taking instructions too literally. He wrote that Scalia and others were “transform[ing] statutory interpretation into a game of gotcha, where slipshod drafting is an excuse to ignore persuasive clues about what Congress meant to communicate.” An amicus brief filed by health policy scholars – which I signed - traced the legislative history of insurance exchanges to suggest that these four words should be read in a broader context such that Congress would not intend to restrict subsidies to people in state-based exchanges (Jost et al. 2015).

(p.153) By making it to the Supreme Court’s docket, however, the case had major potential to upend a core element of the ACA. A ruling for the plaintiffs would have triggered a series of events estimated to result in declines of health insurance coverage for 9.6 million people. Only the sickest would keep their insurance, resulting in significantly more expensive risk pools. Insurers would therefore raise rates for everyone, including people not on the exchange, leading to estimated increases in premiums of as high as 47% (Saltzman and Eibner 2015).

Supreme Court rules requiring four justices to want to hear a case suggested that at least that many had serious doubt about the administration’s interpretation (Bagley, Jones, and Jost 2015). Supporters of the law initially dismissed the implications of the law, since states would face so much pressure if the plaintiffs won that they would quickly move to establish an exchange, which legally allowed people to receive subsidies. Bagley, Jones, and Jost (2015) were not so optimistic, since “an exchange is not just a website and setting up one requires a sizeable investment of time and resources.” States would face enormously complicated questions about how to establish authority under tight time pressures and how to develop all the functionality of an exchange in a matter of months when other states struggled to do so over four years. How would state leaders pay for all this, since exchanges were supposed to be financially self-sufficient by 2015 and given that HHS no longer had authority to give out grants for exchange development (Bagley and Jones 2015)?

Convincing these states to move quickly would have been difficult, especially since these thirty-four states were by definition the most strongly opposed to an exchange. Even if state leaders were willing to cooperate, intense time pressures would have made this difficult. The HHS regulations required that states wanting to establish an exchange needed to apply for conditional approval six and a half months before going live. The next enrollment period was scheduled to begin on November 15, less than five months after the Court was expected to rule. Further compounding the challenge was the reality that only eight of the thirty-four affected states would have legislative sessions in the latter half of 2014 (Bagley, Jones, and Jost 2015).

Leaders in these states were in a very difficult position during the months they spent in limbo. Opponents were reluctant to do anything that would align them with the Obama administration. Supporters worried that developing contingency plans would undermine their position that the lawsuit lacked merit, since it showed they worried the government would lose. The Obama administration repeatedly said it was so confident it would win that it was doing nothing to prepare for the possibility that it would not. (p.154) State leaders also anticipated that Congress and the administration would react to the ruling, thereby changing the nature of the options available to states. Any planning prior to the ruling would therefore be a waste of time. Meanwhile, state-level Republicans worried they would be blamed if people lost their coverage (Jones et al. 2015).

Drama built as the end of the Court’s session drew near in late June 2015. Congressional Republicans wrote op-eds saying that they had plans under development which would protect anyone from losing coverage (Hatch, Alexander, and Barasso 2015). Conservatives hoped these would convince any undecided members of the Supreme Court that the administration was exaggerating its predictions about what was at stake. Legislation was introduced in both the House and Senate, including a bill cosponsored by Senate Majority Leader Mitch McConnell (S.1016 2015). However, there was little indication that Republicans would be able to unite behind a single post-King plan (Klein 2015).

State leaders were unsure of how to prepare. A confidential meeting was convened by the Millbank Memorial Fund in June 2015 in which leaders from New Mexico and Idaho, along with Nevada who had gone a similar route when their eligibility system had not worked, shared their experiences with advisors to governors and state agency heads such as insurance commissioners and secretaries of health from nearly twenty states (Koller 2015). This “secret huddle” at an O’Hare Airport hotel gave states a chance to compare notes on their options with regard to King v. Burwell (Radnofsky and Armour 2015). Delaware and Pennsylvania subsequently submitted proposals to become a state-based exchange, making sure that their applications were in and they received conditional approval by June 15 (Pradhan 2015). This was a protective measure to satisfy the requirement that applications be received six and a half months before a new exchange went live. A bill introduced in New Hampshire was nicknamed “the magic wand,” because it would have changed the legal status while doing nothing else different (Jones et al. 2015). This was also called the “dub thee” option, as in the legislature would now be saying “I dub thee to be a state exchange” even though nothing changes (Interviews 2015). It is not clear whether this would have passed legal muster, but it would have bought the state time to keep residents covered.

On June 25 the Supreme Court announced its 6–3 ruling in favor of the Obama administration. Chief Justice John Roberts and Anthony Kennedy joined the four liberals on the court, with Roberts writing the opinion. He explained that the law should be read so that “state exchanges and federal exchanges are equivalent—they meet the same requirements, perform the same functions, and serve the same purposes.” He concluded, (p.155) “it is implausible that Congress meant the Act to operate” in a way that restricted tax credits, since “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former and avoids the latter” (King v. Burwell 2015).

Justice Antonin Scalia was livid. He called the decision “pure applesauce” and “interpretative jiggery-pokery” because of its “somersaults of statutory interpretation.” He chastised Roberts and the rest of the majority for lacking shame and suggested “we should start calling this law SCOTUScare” since the Court saved the law twice (King v. Burwell 2015).

The Affordable Care Act survived King v. Burwell. However, this still did not mean the law was invincible. More lawsuits were filed, including by the House of Representatives over the Obama administration’s use of funds to implement an aspect of the law despite no clear appropriation by Congress. In December 2015 the US Senate finally voted to repeal the ACA, something the House had already done more than fifty times. President Obama vetoed the bill in January 2016. Donald Trump went on to win the presidency in 2016 on a platform of repealing Obamacare. As of this writing it is unclear whether he and Congressional Republicans will follow through with their threats.

Looking Forward

The Supreme Court’s ruling in 2015 did not end fighting over the ACA, but did mean that states could continue as they were with respect to health insurance exchanges and that people with eligible incomes could receive federal subsidies to purchase insurance. Consumers in states refusing to participate could continue to rely on the national website healthcare.gov. States wanting more control would continue to move in this direction.

I now turn to two final questions: First, assuming the law survives existential threats such as the possibility of repeal or further litigation, what is the future of health insurance exchanges? Second, what can we learn from this episode about the future of health reform and US federalism more broadly?

The Future of Health Insurance Exchanges

It is very difficult to make predictions about the future of health reform from the vantage point of early 2017. A Republican-led Congress has built (p.156) incredibly high expectations that it will work with President Donald Trump to repeal major components of the ACA and has already passed legislation in the House. But let us assume for a moment that they do not make any changes or that Hillary Clinton had won the election. Would more states have decided to reclaim control over their exchange from the federal government or had a new status quo emerged in which states are locked into the decision they made prior to 2014? As described earlier, this is fundamentally different from the similar question of whether more states will expand Medicaid. The loss of money for the state budget and the number of people going without insurance coverage make it likely that most states will ultimately accept the Medicaid expansion. States now have very little to gain for all the work that would be required by choosing to take control of their exchange. The requirement for state exchanges to be financially self-sustaining is a high hurdle, particularly now that states can no longer receive federal grants. It is unlikely that very many, if any, will decide to switch to a state-based exchange.

The dynamic between states and the federal government changed after the exchanges went live in 2014. A subtle shift took place, and was crystallized with the ruling in King v. Burwell, in which the federal government is no longer desperate for states to step up. Healthcare.gov had a disastrous beginning but is functional and continually improving. Federal call centers are in place, and enrollment targets are consistently met. Changing arrangements with states might be more complicated at this point than it would be helpful.

Two states have tried to build their own websites since 2014: Idaho and New Mexico. Idaho’s experience demonstrates that a motivated state could move from using healthcare.gov to developing its own. After using the federal website in 2014, the state was able to create its own site in time for the 2015 enrollment. But its experience was so unique that it might serve more as a warning than a model for other states interested in a similar evolution. It had a very different starting point than any other state considering this approach going forward. Although it relied on the federal website the first year, the law passed in March 2013 meant that Idaho was officially designated a state-based exchange. It had an active board of directors, a respected executive director, and it insisted on retaining control of regulatory decisions. It was able to apply for the large level 2 establishment grant for state-based exchanges before the deadlines passed.

Leaders in Idaho described the federal government as a subcontractor, while at the same time acknowledging the confusing dynamic in which the federal government was also the ultimate authority. Idaho was able to migrate from healthcare.gov to its own website largely because the state (p.157) had already invested significant resources in upgrading its Medicaid eligibility systems. This technology could be leveraged as a front door through which people could access the exchange. States that had not already made these changes would likely have a hard time affording a new site, especially in the absence of federal grants. The exchange also creatively partnered with insurance agents and brokers to save the state money by doing advertising and promotion on behalf of the exchange. The relationship with agents and brokers is much more adversarial in other states, making this an unlikely option.

New Mexico’s experience after 2014 epitomized the new dynamic between states and the federal government and the challenge that other states could face. Their exchange legislation was passed in March 2013 on the same day as Idaho’s. The newly formed board quickly realized it was too late to develop their own technology in time for the beginning of open enrollment that October. Like Idaho, they decided to rely on the federal website for the first year while making plans to build their own website in time for the 2015 enrollment period.

In mid-2014 the board hired Amy Dowd as its executive director, the person who previously led Idaho’s exchange. The board decided that the state’s website would not be ready for 2015 and that it would be better to wait one more year than to rush toward a disastrous rollout. As the final deadline for a federal level 2 establishment grant approached in November 2014, the state submitted an application requesting $97.9 million to finish its website. The Obama administration did not approve the proposal. Their rejection specifically cited and rebutted the sharply worded letters that Governor Susana Martinez submitted with the application criticizing the Obama administration for what she considered new requirements that were onerous and difficult to achieve (Martinez 2014b). Without these funds, the state lacked the ability to develop its own technology and would continue to rely on the federal website while still ostensibly being a state-based insurance exchange. People on either side of the debate either criticize Governor Martinez for how she handled this or the Obama administration for their decision.

Regardless of whose version of the story is accurate, this was the first time the Obama administration had rejected a state’s exchange grant application during the ACA’s implementation. Up until this point, states had always received money every time they submitted an exchange grant. The federal government had been a virtually blank check. The rejected grant application made it clear that this was no longer true.

Plans for transitioning to state-run exchanges in Delaware and Pennsylvania were immediately abandoned once the Supreme Court ruled (p.158) with the Obama administration in King v. Burwell. States like the idea of having user fees for their consumers below the federal level of 3.5%, but local control was not worth the work after the disaster of King v. Burwell had been adverted. There is little reason to think that other states will come to a different conclusion and will decide to move to a state-based exchange.

States could consider following the lead of New Mexico and Nevada by retaining control of decision-making but using the federal website for enrollment. However, the situation has changed in these states in ways that make this model less tenable. The federal government used to allow states to use the website rent-free, but will now be charging a fee (Interview July 2016). Unless something changes, it is unlikely that more states will take this approach—or any other—to transition from a federal exchange to one that is state operated.

If there is any movement, it will likely be in the direction of states giving up and ceding some control back to the federal government. Small states like Rhode Island are in a difficult position to fulfill the requirement that all exchanges be self-sustaining. One state has already undone its decision to run an exchange. Kentucky Governor Steve Beshear established Kynect in July 2012 after his legislature failed to act. This made Kentucky the only state in the south to operate its own exchange. He did the same with Medicaid expansion. The implementation of both programs went very well and was considered a national model. President Obama even invited Governor Beshear to the State of the Union and praised his leadership. Approximately 425,000 gained coverage in Kentucky as a result of the ACA, bringing the uninsured rate down from 14% in 2013 to 6% in 2015 (Barnett and Vornovitsky 2016). This is a stunning decrease in such a short period of time.

These gains would likely have been maintained or even improved had Kentuckyians elected Democrat Jack Conway as their next governor. Instead, they voted for Matt Bevin, whose campaign platform consisted of getting rid of Obamacare in Kentucky (Jones 2015). Reminiscent of the question “What’s the Matter with Kansas,” (Bartels 2006) people in the parts of the state that benefited the most from the ACA voted overwhelmingly for Bevin. Polling shows that 63% of Kentuckyians have a favorable view of Medicaid and 72% would rather keep the program rather than take away insurance from people (Hamel, Norton, and Brodie 2015). They may not have understood that getting rid of Obamacare would jeopardize their insurance, not realizing that Kynect is the state’s version of the ACA.

Kentucky’s experience is a good test for the question of whether it mattered if a state runs its own exchange. Eligible people will continue to receive federal tax credits through healthcare.gov. However, the state’s (p.159) website was a one-stop portal for multiple programs such as Medicaid, KCHIP, WIC, and SNAP. The decision to undo the state’s exchange may jeopardize assistance through all of these programs. As early as September 2016—well before any benefits would be affected by changes made by Governor Bevin—leaders of local health departments said they were already seeing an increase in utilization from people who were concerned they were about to lose insurance (Interviews September 2016). Former Governor Steve Beshear is frustrated and disappointed, saying that “to knowingly jeopardize the health care of thousands of families in Kentucky is incomprehensible and irresponsible” (Yetter 2016).

Other state-based exchanges are likely not as vulnerable, because other than New York and Rhode Island—two states unlikely to see a major shift in attitude from leadership about the ACA—they were created by legislation rather than executive order. In other words, the same institutional forces that made it hard to pass a law creating an exchange would make it difficult to pass a law undoing an exchange.

The Future of Health Reform

The 2016 election makes the previous paragraphs more of a thought exercise than an analysis on what is likely to happen. But the fight over health insurance exchanges detailed in this book provides important insights for future attempts at reform, whether these reforms are focused on repealing the ACA or sometime further down the road expanding coverage further. Federalism is likely to be an appealing solution to the political challenge of winning sufficient consensus in Congress to pass anything. Many Republican proposals to dismantle Barack Obama’s signature reform focus on giving states significant choices, in some cases even to keep major ACA programs. Liberal states might find that pushing for increased flexibility from the Trump administration will be the best way to mitigate the damages. If the ACA is repealed, the next Democratic president and Congress will face enormous pressure to pass new health reform restoring coverage expansions.

Given the complexities of trying to simultaneously move forward on fifty fronts, should the lesson from this episode be that supporters of health reform or other broad initiatives avoid federalism and focus on national solutions? Not necessarily. For one, this is not a fair question, since the ACA would not have passed absent a large role for states. Reformers likely would rather struggle through a complex implementation than have no reform at all.

(p.160) There are many other examples of policies in which the federal government has convinced states to participate despite partisan tension, including two major health insurance programs: Medicaid and the Children’s Health Insurance Program (CHIP) (Grogan and Rigby 2009). Every state now administers both programs and few would likely seriously consider backing out. The lawsuit that led to the ACA case before the Supreme Court in 2012 was based on state leaders protesting coercive threats that would have eliminated their Medicaid programs. When CHIP was up for reauthorization in 2015, 80% of governors wrote letters calling on Congress to continue the program, including many Republicans who opposed the ACA (Oberlander and Jones 2015). But the fight over insurance exchanges illustrates that the federal government does not have an unlimited ability to compel states to do what it wants. It should be modest and realistic in its expectations when asking states to play a prominent role in health and in other policy domains such as education or environmental reform.

The federal government’s leverage in negotiating with states is affected by the nature of the policy in question. The contrast with Medicaid and CHIP reveals an important characteristic of the negotiation over exchanges. When push came to shove, the incentives to take the initiative on building an exchange—the promise of money and the threat of preemption—were not as strong as expected. Yes there were programmatic advantages of local control such as the potential for better coordination with Medicaid eligibility systems and the ability to determine whether their exchange would be a highly regulated active purchaser or a looser clearinghouse. There were also political reasons for states to want local control as well, since this was the preference of their major interest groups.

But as Béland, Rocco, and Waddan (2016) point out, exchanges were particularly susceptible to the politics of dissent because their high level of institutional fragmentation was combined with a relatively high level of public salience, low level of public support, and weak policy legacies. Unlike with the Medicaid expansion, in which money would flow into state budgets and into the hands of key interest groups, state flexibility over the exchanges brought weak fiscal incentives. Medicaid money would not come if states did not opt in to the expansion. Exchange money would come regardless of what the state did. In addition, states benefited very little from the money they received to establish exchanges. These federal grants simply covered the expense of hiring IT vendors, consultants, or additional staff to work under terms dictated by HHS. Many state leaders came to see their role in the exchange as doing the Obama administration’s dirty work without getting much in return.

(p.161) The threat of a federal takeover came to be viewed as a safety net. There was very little risk for a governor or legislator to oppose an exchange. Every eligible person in their state would still receive the subsidies to make insurance more affordable, regardless of whether it was through a state-based or federally run exchange. By contrast, a state refusing to expand Medicaid was foregoing millions of dollars and denying insurance coverage to large numbers of people. By dragging their feet for so long on the exchange, opponents hoped they were increasing the likelihood that it would fail and Obamacare would collapse. If that happened, the Obama administration would take the blame, not state leaders for standing up to the president. If the program was successful and popular, state leaders believed they might still be able to convince voters that they deserved credit.

Supporters of even more comprehensive health reform should recognize the challenges that reliance on federalism brings. Pursuing a national strategy does not ensure that all of these challenges will be avoided, but does take away an opportunity for perpetuating postenactment obstructionism. Even so, the ACA strengthens the role that states play in the governance and financing of healthcare in the United States. The realities of path dependence are such that it will be very difficult for any substantial health reforms to not take this into account and include at least some room for state adaptation.

State-level resistance to health insurance exchanges was stunning and unexpected, epitomizing the messiness of intergovernmental politics. The ability of exchange legislation to pass in Idaho—one of the most conservative states in the country—makes it clear that no state was destined to make the choice it did. Every state was up for grabs. The story of the ACA and the health insurance exchanges is far from over. Supporters will continue to work on strengthening the reform just as opponents will continue to undo it.

This is just one of the many marble cakes created by ever-evolving and overlapping boundaries between states and the federal government. One of the lasting consequences of this episode may be an increased confidence among state leaders to resist federal policy it does not like. As with health insurance exchanges, we can expect states will be in a difficult position of navigating internal battles at the same time as trying to influence national policy. A major lesson for federal and state reformers is that the process of determining who in a state makes decisions is not always straightforward and can be as contentious as debates over which policies to adopt.

(p.162)

Notes:

(1.) He made this comment as an audience member at event, sponsored by the Scholars Strategy Network, at Harvard University on October 2, 2014.