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Cato scholar: No upside, only downsides to creating Idaho insurance exchange

Cato scholar: No upside, only downsides to creating Idaho insurance exchange

Idaho Freedom Foundation staff
August 30, 2012

Choosing not to implement a health insurance exchange in Idaho would be an "absolute slam dunk," according to Michael Cannon, director of health policy studies for the Cato Institute, a public policy think tank based in Washington, D.C., who was one of the speakers Wednesday at the second meeting Gov. Butch Otter's health insurance exchange working group. Much of Wednesday's meeting was devoted to discussing the intricacies and practical considerations that would be involved in implementing a state-based exchange if Idaho leaders choose to do so, but Cannon was adamant that state leaders should refuse to participate. He spoke to the panel via teleconference.

"There's no upside for Idaho to create an exchange, there are only downsides," Cannon said. "And if you refuse to create an exchange, you'll protect your state, you'll protect employers, you'll protect individuals and you can even force Congress to reopen this law and at least make major changes, but hopefully repeal this law entirely."

The Patient Protection and Affordable Care Act (PPACA), commonly known as Obamacare, stipulates that if states don't set up their own insurance exchanges, the federal government will step in to create them instead. Some Idaho legislators have suggested that it may be worthwhile to create an exchange to stave off federal control that they believe would lead to higher health insurance costs for Idahoans, as House Minority Leader John Rusche, D-Lewiston, told IdahoReporter.com in a previous interview.

Cannon said, however, that federal control over any state exchange would be so extensive that it would fall under state control in name only.

"State officials around the country have increasingly come to see that the choice they face is not between a state-run exchange and a federal exchange, the choice is between a federally controlled exchange and maybe none," Cannon said. "Because if a state creates its own exchange, it's not going to be able to control it. The statute requires that a state-created exchange be approved by the secretary (of Health and Human Services), and the statute gives the secretary the ability to impose whatever restrictions, whatever regulations she wants on a state-created exchange. So the secretary has as much control over a state-created exchange as over a federally run exchange."

Cannon also explained that funds have not been appropriated that would allow the federal government to create exchanges, because people drafting the legislation assumed that states would be eager to establish their own. States refusing to participate could therefore throw a fiscal monkey wrench into the federal government's plans to implement Obamacare throughout the nation.

Perhaps even more important for state sovereignty, Cannon said, is that opting out of a state-run exchange would give Idahoans standing to challenge a forthcoming tax that the Internal Revenue Service plans to levy on employers, amounting to $2,000 per employee. The PPACA only provides for that tax to be applied in states that have established their own exchanges, Cannon said.

"You don't want to create an exchange in Idaho because the inaction of not creating an exchange protects the employers in your state from the employer mandate, and it protects half—or more than half—of the uninsured in Idaho from the individual mandate," Cannon said. "We're talking about all employers and more than 100,000 Idahoans you can protect from Obamacare's employer and individual mandate, just by refusing to create an exchange."

These mandates would have federal tax credits attached to them, essentially a form of public grant funding, and during a question and answer period Rusche expressed skepticism that it would be a good idea to turn down those funds. Cannon pointed out, though, that the tax credits do not amount to a tax cut.

"We're not talking about tax reduction, we're talking about a tax increase," Cannon said. "Here's how the math works out. It's hard to understand the actual costs involved, because it depends on how many states create exchanges, and even how many states expand Medicaid. But for every $2 of tax reduction that comes from these tax credits, there is more than a dollar of immediate tax increases under the employer mandate and the individual mandate, and there is more than $8 of new federal deficit spending, which is just a deferred tax increase. So, even though we're talking about tax credits here, it's not really tax credits that we're talking about. This is a package deal, and it is on net a large tax increase."

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