FreedomWorks Foundation Content

Full Repeal Part 1: Do Not Implement a PPACA Exchange

Freedom-loving Americans are more determined than ever to be rid of the misnamed Patient Protection and Affordable Care Act, knowing as we do that it will neither protect patients nor be in any way affordable.  FreedomWorks and other pro-freedom organizations have a simple Five Point Plan for full repeal. The first two of those points call for states to limit the Act’s reach. It is important for activists and policy makers to understand these points and be able to explain them to others.

First,  governors and legislators should decline to implement the Act’s exchange in their state.

The final four points are to decline to expand the state’s Medicaid program, and for pro-repeal candidates to win the House, Senate, and Presidency in November. Then, of course, we will have to keep the pressure on our elected officials to pass a full repeal and proceed with reforms that champion patient centered health care and free market principles. 

Michael F. Cannon, Cato Institute director of health policy studies, joined a FreedomWorks live blog event May 22. He revised his remarks only slightly after the Roberts ruling (pdf),  

“Let’s be clear,” Cannon said, explaining the first two points in the plan. “States can’t stop Obamacare at their borders, but they can stop certain elements. They can stop large chunks of it, in fact, and if they do it will make eventual repeal that much easier. The two main pieces that states can stop are the state-based exchanges and the Medicaid expansion.” 

“What they can do,” continued Cannon, “is make it very hard for the federal government to implement the law. In fact, they may even be able to make it prohibitively hard. The main way is by refusing to create a health insurance ‘Exchange’ and by sending all related funds back to Washington. This idea has been endorsed by ALEC and even the erstwhile Exchange supporters at The Heritage Foundation.”

States will have little or no control over how the exchanges are run, but will be forced to spend the money to run them. Those funds will be unavailable for other state priorities, and will cause lawmakers considerable pain at budget time. When the exchanges fail to operate smoothly, state policy makers will get the blame at both ends.

At the live blog event, Benjamin Domenech, Senior Research Fellow at the Heartland Institute, said, “As Michael notes, HHS was never prepared for the eventuality that more than a few states would refuse to implement. They are now stuck with a problem they never expected to have, in part thanks to efforts of people like him to inform state legislators of the negative costs of implementation.”

Cannon explained the reasoning behind the exchange strategy:

  1. “Congress has authorized zero money for the feds to create an Exchange. So if states refuse, they’re creating a big implementation problem for HHS.
  2. “If HHS manages to come up with the money to create federal Exchanges, they’ll have to do it by siphoning money away from other uses. That creates a political problem for the administration. Not only are they putting money toward a purpose for which Congress hasn’t appropriated funds, but they’re taking money away from a purpose for which Congress has appropriated money. There’s bound to be some screaming from the constituencies who were expecting that money.
  3. “And even if HHS creates Exchanges, it doesn’t have statutory authority to offer tax credits / subsidies in its Exchanges. Without those, ObamaCare could collapse as surely as if you knocked out the individual mandate. The reason is, that without credits/subsidies to help people afford ObamaCare’s overpriced coverage, it makes financial sense for healthy, low-income people to pay the penalty and wait until sick to purchase coverage. When they leave the market, pools get sicker, premiums rise, and more people drop out. When states refuse to create an Exchange, they are practically forcing Congress to reopen the law. 
  4. “Of course, the administration has said that it will offer tax credits/subsidies in federal Exchanges anyway, which is a blatant violation of the Constitution and can be challenged by states that refuse to create an Exchange, as well as any large employer in that state. The reason: offering those illegal credits/subsidies exposes those employers to ObamaCare’s employer mandate whereas they would otherwise be exempt. 
  5. “Since the Supreme Court failed to strike down all of ObamaCare, then states refusing to create Exchanges is our best chance of destroying this law.”
The way the law is written, the employers only incur a mandate penalty when an employee takes advantage of subsidies in the state-run exchange. If there is no state-run exchange, there can be no subsidy and thus no penalty.
Employers of more than 50 people in a state would be advised to oppose implementing an exchange, so they don’t face the significant fines associated with the Act.


Cannon continued. “Even though the law authorizes the federal government to set up an exchange in states that don’t, Congress never authorized any money to create the federal exchanges. They didn’t think they’d need it. I don’t think the House will authorize any. That might be why the administration is suggesting they will cover start-up costs for up to 6 years.”

The Obama Administration had decided to treat federal and state exchanges the same for subsidy purposes, regardless of the law.


“At a minimum,” Cannon concluded, extending subsidies to federal exchanges without Congressional authority “would present a political problem, even if there are no lawsuits. The IRS is taxing and spending without authorization. They are clearly violating the law.”