The Affordable Care Act: A Case Study for Cooperative Federalism?

If the health reform law is upheld, the flexibility it will give states on health insurance exchanges could be a model for healthy federal-state relations.

While everyone waits for the Supreme Court decision on whether the Affordable Care Act (ACA) is constitutional, it’s useful to explore what impact the new law might have on federal-state relations.

The question the court must decide is whether the individual mandate -- the requirement that most everyone obtains health insurance or be fined -- is constitutional, and if it isn’t, if the rest of the law can remain in effect. There are other issues as well, such as whether the required expansion of Medicaid in every state is overly coercive and if Congress can regulate inactivity, which is an individual’s decision not to buy insurance. But these are relatively esoteric legal points compared to the mandate.

The decision will have significant repercussions in the states. Under the law, states and insurers have to be ready to sign up 32 million new enrollees either for Medicaid or private insurance plans by 2014 using online insurance marketplaces known as exchanges, designed to help individuals and small businesses shop around for acceptable policies. All states are supposed to provide standardized, customer-friendly application processes to help consumers, including low-income individuals applying for the expanded Medicaid program.

If the mandate passes constitutional muster, some states will be in good shape to meet the requirement, some definitely will not be and the others will be somewhere in the middle. The pattern of states by category predictably falls into the classic red-blue-purple divide in modern American politics. Here’s the scorecard: The lawsuit challenging the ACA included 26 states. The Urban Institute counts 14 states that have made significant progress in forming their exchanges, 16 that have done very little and the remaining 20 somewhere in between.

Paradoxically, an analysis by the Robert Wood Johnson Foundation pointed out that generally the states that had the highest levels of uninsured populations were the same ones holding off on implementation until the court ruling.

The problem for governors who wait is that deadlines are approaching and the work to be done is prodigious. If any state can’t or doesn’t wish to design and operate an exchange that meets federal requirements, the U.S. Department of Health and Human Services (HHS) will step in and run it for them. By January 2013, the feds will certify which states are ready to run exchanges. If the court doesn’t rule until mid-summer, that leaves little time to develop complicated plans and submit them for approval.

“It’s hard to imagine how a state could take all the necessary legislative, policy, operational and IT system development steps needed to meet this compressed timeline if it doesn’t start work until the summer,” notes Dave Chandra, a health policy analyst at the progressive Center on Budget and Policy Priorities. States will be able “to test their eligibility, enrollment and management systems in the spring and summer of next year,” then open enrollment for individuals and businesses to compare plans in October. On Jan. 1, 2014, the exchanges are supposed to go live.

The politics of the issue haven’t favored the administration. Public support for the reform plan in general is evenly divided, but the individual mandate is opposed by many more. In the heat of the GOP presidential primaries, with all four major candidates lambasting the ACA, some conservative governors and legislators who originally favored proceeding with plans for their exchanges backed away. States in the South and Midwest have taken a hard-line approach. Wisconsin Gov. Scott Walker even sent back a $37 million federal planning grant that his predecessor had received.

Oddly enough, if you care about federalism, the ACA eventually could become a case study in healthy federal-state relations. HHS Secretary Kathleen Sebelius might as well be auditioning to be Ms. Flexibility, seeing as how she’s allowing states ever-expanding wiggle room in the way they plan and administer their exchanges. Indeed, an amicus brief filed by 11 states and led by Oregon argued that the reform act, if anything, gives states more freedom.

“In a cooperative federalist program, the federal government establishes the program’s core requirements and gives the states the freedom to implement their own programs,” the brief stated. “While expanding Medicaid’s basic eligibility standards, the ACA does not disturb the states’ autonomy and freedom to experiment that has always been a hallmark of the program.”

In part, the administration’s deferential posture is political: The White House doesn’t want to be seen as grabbing authority from states. But there also seems to be a genuine “laboratories of democracy” strategy developing to test various approaches within a general framework to see what works. Oregon, for example, is one of the most aggressive states in overhauling its health-care system to improve quality of care, cut costs and establish an insurance exchange.

This is not new: The mixture of collaborative and coercive strategies in dealing with states has become a hallmark of the Obama administration across a range of issues.

Caroline Cournoyer is GOVERNING's senior web editor.
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