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Real State Power Means Getting in the Obamacare Game

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After a hard-fought legislative battle and a Supreme Court challenge, the fight over Obamacare now rages at the state level, as states decide whether to run their own health-care exchanges under the auspices of the Affordable Care Act (ACA).

Over half of the states have refused to set up their own health exchanges; most of those have also rejected the Act’s Medicaid expansion. Politics are obviously at work here, as Republicans seek to block Obama’s agenda. But there are principles at stake as well. Texas governor Rick Perry calls Obamacare a “brazen intrusion into the sovereignty of our state.” He and other governors believe that boycotting the program is the right way to protect state power.

That is a mistake. In fact, the governors have it precisely backwards.  If they care about state power or have doubts about Obamacare, they shouldn’t be sitting on the sidelines by boycotting — they should be suiting up and getting in the game. The reality is that they would have much more power, and influence over the shape of the program, by administering it under a flexible federal law.

 A few Republican governors have recently figured out why it’s worth playing ball with the federal executive. When Florida’s Rick Scott and New Jersey’s Chris Christie did an about face on the new Medicaid expansion last month, they were granted immense discretion to run their programs as they saw fit. Arkansas Governor Mike Beebe cut an even better deal. He agreed to expand health care to his state’s poor not through more Medicaid but through a bigger private health insurance exchange, with the feds picking up 100% of the tab. As Beebe put it, “basically [HHS] agreed to give us about everything that we’ve asked for.”
The conservative politicians who care most about state power seem to have overlooked this lesson. They seem to believe power means only one thing: sovereignty, the ability to preside over one’s own empire. That is why they are loath to play a role in administering the federal health care program. The ACA would “make Texas a mere appendage of the federal government,” thunders Perry, because it “treat[s] the states like subcontractors through which the federal government can… pursue federal priorities.”Perry’s rhetoric about state “sovereignty” and national “encroachments” sounds familiar themes from decades of the battles over federalism. But Perry and his compatriots have missed a crucial fact — states wield a great deal of power when they serve as the agents to the federal government’s principal. Far from a federal leviathan, political scientists have aptly described the American polity as one of “delegated sovereignty,” with states playing a central role in administering federal law in a variety of areas, including welfare, the environment, and Medicaid. That role, in turn, gives the states a great deal of influence over the shape of federal policy.

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We all know how much power the agent wields in any such relationship — that’s why the term “principal-agent problem” is self-explanatory. Anyone who has run an agency or a corporation knows well how much power administrators wield. But somehow that lesson has been lost in the debates over federalism.
Many Republican governors, of course, would rather stick with the sovereignty model of state power. They would rather eliminate federal programs than administer them. But in this day and age, the real question is this: Given that there are so many areas where the national government now plays a role, should state officials engage and administer the burgeoning federal empire, or pull back and preside over smaller, less effectual empires of their own?
There is a rich history of state officials reshaping federal policy from within rather than challenging it from without. The role that states play in so-called “cooperative federalism” regimes gives them a great deal of power to interpret, influence, even resist federal mandates. There are countless examples of such state resistance and rebellion inside federal administration. Michigan and Wisconsin used their power to administer federal welfare law to create competing “welfare-to-work” models, thus helping topple the national system. California has prodded the national government toward stronger environmental regulation. States, in short, reproduce the same type of resistance and dissent and dialogue within the federal administrative system that now exists outside of it. We describe these regimes as cooperative federalism, but the truth is they can be — and often are — “uncooperative federalism.”
As Christie and his colleagues discovered, there’s lots of room to maneuver in the health care context. The federal government has long subsidized state-by-state variation in order to serve broader and longer-term goals. Bill Clinton and George Bush cut so many deals with the states that they granted three times as many state Medicaid waivers than had all other Presidents in the previous three decades of the program. The Obama administration has been just as willing to give away huge policy discretion to states that play ball on the ACA. And with good reason. Presidents like Obama are seeking to entrench transformative new programs. They care more about the long sweep of history than the immediate details of implementation. Moreover, by buying state cooperation through agency waivers, Presidents avoid teeing up the sort of federal-state conflicts that might tempt Congress or the courts to interfere.
Conservatives lost the fight to keep the federal government out of health care. But when the policy-making gods close a door, they sometimes open a window. In this case, the ACA guarantees that state officials will play a crucial role in administering an important federal law. They will be able to provide a source of change, policy variation, and occasionally dissent for a national program that’s going to matter a great deal to a great many people. It is bewildering that so many leaders have abandoned the chance to be part of that program in the name of promoting state power and dissent. In fact, they have done just the opposite.
Heather Gerken is the J. Skelly Wright Professor of Law at Yale Law School where she specializes in election law and constitutional law.  Theodore Ruger, Professor of Law at the University of Pennsylvania Law School, teaches food and drug regulation and is a contributing author to Regulatory Breakdown: The Crisis of Confidence in U.S. Regulation
This post originally appeared on the Harvard Business Review website.

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