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States' Rights Becomes Issue in Reform Negotiations

The divide between the states and the federal government on healthcare reform continues to widen. First it was the states' role in helping to fund the expansion of Medicaid, which some claimed would bankrupt them. This issue was complicated by a provision in the Senate bill-negotiated to bring Nebraska Sen. Ben Nelson onboard-that would require the federal government to fully finance the Medicaid expansion in Nebraska forever. Other states didn't like that. Then Republican legislators in a dozen states, as well as Florida's attorney general, questioned the constitutionality of requiring everyone to have health insurance. And now state insurance commissioners are insisting that they retain control of the insurance exchanges for individuals and small firms. The Senate measure provides for that, but the House bill would create a new federal agency that would oversee a national insurance exchange. President Obama has said he prefers the House approach, but the question is far from settled.

There's already federal oversight of health plans sponsored by big, self-insured companies. These "ERISA" plans, as they're called after the federal legislation that created them, are exempt from state regulation. But the states still regulate fully insured health plans, along with auto, real estate, and other kinds of insurance.

If the states set up their own insurance exchanges, they would determine which plans can participate and how much they can increase their premiums. While the Senate legislation specifies minimum benefit levels and also restricts the amount by which plans can vary their premiums by age and gender, each state has its own benefit requirements and its own level of regulation. So it is likely that different state exchanges would offer people health plans of varying quality. In addition, some states might not even follow the federal regulations or do much to ensure that their exchanges were successful. As for restricting premium increases, state regulators do not have much of a track record there. For example, Connecticut's insurance department just approved double-digit increases for Anthem, Health Net and Connecticare.

Citing lax regulation in the marketing of Medicare Advantage plans, the state insurance commissioners argued that the federal government has not been very successful in insurance regulation. They also contended that "this dual regulation is likely to create unnecessary cost and confusion and produce no added value."

One might speculate that the insurance commissioners want to retain as much power as possible in their own sphere. It's also possible that the commissioners are reflecting the view of the insurance companies that many came from or are headed for after their state service. The insurance industry opposes the creation of a federal insurance agency, although it would like to see state regulations harmonized so they contained fewer variations.

But if a major aim of reform is to ensure that the uninsured are able to obtain affordable insurance everywhere in the country, it's hard to see how the states could do a better job than a single national agency would. Instead of creating a new bureaucracy, perhaps the job should be given to an expanded Office of Personnel Management, which has been successfully running the Federal Employee Health Benefit Program for decades.

Now is no time for states' rights to rear its head again, or for state governors to claim that the federal government doesn't have the right to tax state residents if they don't buy health insurance. It's time to pass healthcare reform and do our best to make sure that, eventually, everyone gets covered.