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The NYT has an interesting story today on Obamacare’s requirement that the states create insurance exchanges—or the Feds will! This brings to fore another fecund area of bureaucratization imposed on the country by the law—the ones required to be created at the state level.

How will the states set up their exchanges?  That remains to be seen. Massachusetts’ Romneycare, which served as a model of sorts for Obamacare, requires residents to purchase insurance, restricts competition, and has the state directly negotiate with insurance companies.  From the story:

In Massachusetts, which has had a government-run health insurance marketplace for four years, people typically file paper applications for subsidized coverage offered by one of five state-approved insurers...In the Massachusetts exchange, known as the Connector, the state serves as an active purchaser, soliciting bids from insurance companies and negotiating prices and benefits in an effort to secure the best value for state residents. Health plans cannot be sold through the Connector unless they receive its seal of approval.

The state boasts that it has more people covered than any other state. Not coincidentally, Romneycare is also broke, but that’s a story for another post. In contrast, Utah seeks to keep from getting between consumers and insurance companies.
In Utah, employees of small businesses can go to a state Web site and sign up for insurance over the Internet, almost as easily as they download music from iTunes...The Utah Health Exchange organizes the market, allowing consumers to compare a wide variety of health plans sold by any insurers that want to participate. Matthew A. Spencer, manager of the Utah exchange, said: “We are on the other end of the spectrum from Massachusetts. Our exchange is wide open for any carrier that wants to participate. We define the minimum benefits that plans need to offer. But we step back and allow carriers to compete within the exchange, setting their own prices.”

Utah does not require people to be insured.  Under Obamacare, if the purchase mandate passes constitutional muster—a big if—that will change, requiring the state to vastly expand its exchange bureaucracy.

The mandate to create state exchanges will create huge political fights in each of the states as different special interests vie to turn the state’s exchange rules to their advantage—as has already occurred in California.  And indeed, there is much the states are required to control by federal mandate:
The exchanges will have a huge number of duties. They must evaluate health insurance plans and publish “standardized comparative information.” They must set up telephone call centers to answer consumers’ questions. They must determine who is eligible for subsidies and who will be exempt from the penalties imposed on people who go without insurance. They must build new computer systems to exchange data with state Medicaid agencies, insurance companies, employers and federal agencies.

While the exchange cannot explicitly control prices, it can exclude health plans that show a pattern of “excessive or unjustified premium increases.” State officials worry that sick people will gravitate to the exchange, while healthier people who do not need subsidies will buy insurance outside it. However, insurers must agree to charge the same prices inside or outside the exchange.

Thus, we can see that Obamacare is a world champion spawner of bureaucracies up and down the line. Hundreds of federal boards and panels that will seek to tell doctors how to practice medicine and create (I believe) explicit mechanisms for rationing.  But beneath this stultifying weight of raw governmental power, the law requires a profound intrusion of states into the insurance marketplace that will lead to naked political struggles for influence and the kind of rank special interest favoritism that big, big government is so adept at fostering.

I am certainly not against voluntary exchanges that create large group risk pools to keep prices down, facilitate competition, and allow for innovation within the insurance field.  But when exchanges become mandatory and responsible for administering federal law, the bureaucracies tend to accrue increasing amounts of power.  If the state Obamacare bureaucracies are as heavy handed in administering their responsibilities as the Feds are likely to be, health care will become a sludge that barely moves amidst the multiplying red tape.

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