Memo to the Red States: Don't Play Poker With Obama on Healthcare Reform

The ongoing conflict between the Obama Administration and Republican-led states over the healthcare reform law is heading into a new phase, as dissident governors try to sabotage the health-insurance exchanges they're charged with setting up.

Despite Obama's offer to discuss new healthcare approaches in his State of the Union address, he's unlikely to give into the Red Governors' latest demands. And he shouldn't, because for now, he's holding the best cards.

The governors were successful in getting a federal court judge in Florida to strike down the reform law as unconstitutional, but it will take a while for the government's appeal to reach the Supreme Court. Meanwhile, congressional Republicans have failed to repeal the legislation. So the state governors opposed to reform have called for more freedom in how they implement the insurance exchanges, which are intended to provide affordable and easily comparable health plans for individuals by 2014. In a Monday letter to Kathleen Sebelius, Secretary of Health and Human Services (HHS), the governors said they want their states to:

• Choose which insurance companies may offer products in the exchanges;
• Waive federal mandates and allow states to select benefit rules;
• Waive provisions that discriminate against health savings accounts and other consumer-driven health plans;
• Move non-disabled Medicaid beneficiaries into the exchanges;
• Develop a system for verifying incomes and subsidies for exchange participants;
• Conduct a "new and objective" analysis of how many people will enroll in the exchanges and Medicaid because of the reform law.

As for the first three requests, the anti-reform governors are clearly trying to subvert the intent of the reform law so that skimpier health plans will be available through the exchanges. While this would cost the government and consumers less, it would also result in many people not seeking care until they're very sick and have to go to the emergency room. Moreover, those with chronic conditions would end up paying more for the comprehensive coverage that they'd be most likely to buy.

Mixed signals from the Obamans
The Obamans have sent mixed signals to the governors. On one hand, HHS spokeswoman Jessica Santillo talked about constructive engagement with the states, adding that HHS "has made clear we will consider different models that fit states' needs." On the other hand, departing White House spokesman Robert Gibbs called out governors who were critical of the reform initiative yet took funds to implement the state exchanges. According to the Huffington Post, the administration has made it clear that if the states don't build the exchanges, the federal government will do the job itself.

"We aren't going to allow someone not to get important consumer protections just because he has the misfortune of living in a state that doesn't like the law," an administration official tells HuffPo.

So what's the real deal? I doubt that Obama and his team are going to fall for the obvious traps in the governors' proposals. If the administration rejects them, the governors will then be challenged to make good on their threat to not create insurance exchanges (as Gov. Rick Scott of Florida has already done). In that case, they'd be surrendering even more states' rights to the feds.

In the end, I think we'll discover that the governors are bluffing. They can't take the chance that the Supreme Court will uphold the law or that the GOP will fail to unseat Obama in 2012. So the odds are good that most of them will fall into line, albeit kicking and screaming.

Image supplied courtesy of fotopedia.
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