Legislators should not succumb to “false promise of flexibility”

Last week the Louisiana Budget Project (LBP) published a response to our critique of the health insurance exchange proposed by Sen. Karen Carter Peterson in SB744. We have reviewed their arguments in favor of the exchange and find them unpersuasive. Legislators should oppose SB744 for the following reasons:

  1. Unnecessary costs: As noted in our initial report, states will be required to fund the operation of their exchanges. LBP points out that the federal government will cover the start up costs and the first year of operation. But legislators should not be tempted by such inducements. The state will be on the hook for operating expenses after year one. LBP downplays the $40 million annual estimate provided by Bruce Greenstein but offers no evidence that it would cost less. Alabama recently estimated its costs for 2015 as somewhere between $34 and $50 million. Government programs typically end up costing more – not less – than originally estimated. LBP claims that operating costs can be covered by a “modest fee” on insurance companies and website advertising. Bu fees imposed on businesses get passed on to consumers in the form of higher prices. Whether the exchange is funded through taxes or new fees, it represents an unnecessary commitment of resources at a time when legislators are already struggling with shortfalls.
  2. Federal control: Supporters claim that setting up and operating an exchange will put Louisiana in the driver’s seat. But this is not true. The federal government dominates health care policy and President Obama’s Affordable Care Act (ACA) only exacerbates this problem. Any market-friendly, state-level innovations incorporated into the exchange can be quashed by federal action. While conservative think tanks like the Heritage Foundation have spoken favorably about the concept of exchanges in the past, they agree that establishing one at this time is a bad idea. Supporters also claim that these exchanges will address the problem of unaffordable health insurance. But federal and state policies helped create this problem in the first place and it is naïve to think that they can solve it through this new, heavily regulated bureaucracy. As Tony Keck, the Director of Health and Human Services in South Carolina, puts it, the state exchanges offer a “false promise of flexibility.”
  3. Impact on businesses: LBP notes that small businesses will be able to pool their purchasing power to lower costs and to offer a broader range of insurance plans. But these goals are attainable without the creation of an exchange. Policymakers should seek to expand options, but they should do so in a way that does not facilitate the implementation of bad federal law in our state. Further, LPB overlooks the fact that the penalty on employers is only enforceable in states that have created an exchange. This may be the result of a drafting error but it is one more reason Louisiana should not create an exchange at this time.
  4. Funding bad law: Establishing a state exchange does in fact help fund the federal government’s efforts to impose an unpopular law on Louisiana. LBP points out that creating a state exchange does not change these any of the law’s unpopular aspects, but it does help fund them. LBP’s broader claim regarding the alleged benefits of an exchange begs a question: Why do we need the government to create a market for private health insurance? In fact we do not, but central planners prefer government markets to real ones because they facilitate control of products and participants. Legislators may be pleased to hear buzzwords like choice and competition, but this bill would not create a true, consumer-driven market.
  5. Uncertain legal and political prospects: The future of President Obama’s health care law is uncertain. Proponents are pushing legislators to commit to an exchange in hopes that it will be impossible to unwind later.  But none of the alleged deadlines are critical. Policymakers around the nation recognize the folly of rushing to create an exchange. In Illinois and New Hampshire, they have elected to take a wait and see approach. In New Jersey, Governor Chris Christie vetoed an exchange bill because of the uncertainties. In South Carolina, the concept of an exchange was rejected outright. Aside from the other shortcomings already described, prudence dictates caution.


The costs, the lack of flexibility and an uncertain future for the ACA all mitigate against this rush to create an exchange. Claims regarding the merits of an exchange are made in the broadest terms because no specific benefits can be proven. Further, any potential benefits may well be swept aside by judicial, legislative or political developments. Committing millions of dollars to such an enterprise would be inappropriate at this time. Therefore, legislators should oppose SB744.

Kevin Kane is the president of the Pelican Institute for Public Policy