Michael Cannon

As the national conservative movement takes a total-resistance stance on all things Obamacare, their arguments have filtered down to Arkansas on the health-insurance exchange question and are likely to continue to crop up with the coming debate over Medicaid expansion. And some Affordable Care Act opponents believe a lawsuit (yes, another one) may yet undercut the law in places like Arkansas.

The ACA created health-insurance exchanges — regulated marketplaces for some consumers to buy private health insurance — that must be up and running in each state by 2014. Though Gov. Mike Beebe had expressed a preference for a state-run health-insurance exchange, Arkansas opted for a partnership with the federal government earlier this month after the idea of a state-run exchange was scuttled because of objection from legislators, with strong opposition coming from the Republican side.


It may seem strange that conservatives, usually strongly in favor of more state control, have led the charge against state-run exchanges, seemingly ceding more authority to the federal government. (Sen. Jason Rapert [R-Conway] tweeted, “I am hearing from tons of business owners begging the Legislature to say NO to a state or hybrid health exchange for our state” on the very same day that he tweeted, “Federalism is in crisis in our country. The states have nearly ceded all authority they have under the 10th amendment.”)

Republican lawmakers say that they believe that ultimately the feds will have control either way and that a state-run exchange will end up costing the state money, despite more than $26 million in grants from the feds to set up the exchange and a plan to use existing premium fees to meet the ACA’s requirement that the exchange be self-sustaining.


In addition to these objections, opposition to state-run exchanges is part of the platform of continued resistance to the ACA that animates the Republican base. Locally, legislators are paying attention. Rep. Nate Bell (R-Mena) has tweeted advice from Christie Herrera, director of the health and human services task force for the American Legislative Exchange Council (funded by right-wing billionaires David and Charles Koch), on “steps states can take to prevent Obamacare’s most destructive effects on the health care system.” Number one on Herrera’s list was “reject state health insurance exchanges.”

Indeed, ALEC — which published the “State Legislators Guide to Repealing Obamacare” last year and counts a number of Arkansas legislators as members — aggressively lobbied states across the country to say no to creating their own state exchange, as have other conservative outfits such as the Pacific Research Outfit, FreedomWorks and Americans for Prosperity (also Koch-funded).


It’s not surprising that anti-ACA activists might have an interest in throwing a wrench into the plans of the Obama administration, which initially thought states would run the exchanges and is now in a scramble to set up federally run exchanges. Many also genuinely believe that the exchanges will be a disaster, and they want to pin blame on the feds (and Obama) rather than the states.

Still, given that exchanges are going to happen either way, why has so much effort has been put into the technical question of who’s in charge? It turns out that ACA opponents believe there’s more at stake than ruffling administration feathers as a final stand in their great lost cause. They hope that states that reject exchanges may be able to combat the law in court.

Michael Cannon, health-care point man for libertarian think tank the Cato Institute, has argued that while the ACA authorizes state-run exchanges to give tax credits and subsidies to consumers making between 100 and 400 percent of the federal poverty level, it does not authorize federally run exchanges to do so. The IRS has interpreted the statute differently and plans to authorize tax credits and subsidies regardless of whether states or the feds run the exchange.

“It’s a legal challenge to the IRS’s attempt to re-write Obamacare,” Cannon told the Times. “The statute says that if a state does not create its own exchange then major provisions of the law don’t apply.”


Cutting off tax credits and subsidies to help people buy insurance on the exchange would be a major whack at the law, but there’s more. The penalties on employers that don’t offer sufficient insurance to their employees (the “employer mandate”) are triggered by those very same credits and subsidies once their employees go shopping on the exchange. The requirement that people buy health insurance (the “individual mandate”) exempts people if the cost of coverage, minus credits and subsidies, exceeds 8 percent of household income. Without credits and subsidies, many more would be exempted, weakening the mandate. In other words, in Cannon’s reading of the law, in states that don’t run their own exchanges, the exchange will fall apart.

On its face, the argument seems odd — why would Congress establish federally run exchanges as a backup to states but then strip them of everything they’d need to actually run an exchange?

“There are a couple of subsections of a particular section of the statue that if read in complete isolation from the entire rest of the statute and in complete ignorance of the history of the statute, you could read to say that,” health-law expert Timothy Jost, a Washington and Lee law professor, told the Times. “It’s unfortunate that he has had so much impact on states that are just trying to find some way to gum this up.” Jost believes that lawsuits pursuing Cannon’s arguments now will run into problems with legal standing to raise the case, but even if a party has standing, he expects “that the court will take a look at the entire statute … and will throw this case out.”

Cannon and Jost are engaged in an ongoing public debate about these questions. Who’s right? That will be up to lawyers and judges to haggle over in the coming months and years, but Cannon’s ideas aren’t going away. In September, Oklahoma Attorney General Scott Pruitt filed a lawsuit along the same lines in federal court.

Arkansas Sen. Cecile Bledsoe (R-Rogers) explicitly referenced Cannon and his claims last month as legislators considered whether to revisit the exchange issue after the feds gave states an extension on their decision. Citing Cannon as a source, she was hopeful that employers wouldn’t be subject to the law’s penalties if the state said no to running its own exchange, an idea echoed by Sen. Michael Lamoureux (R-Russellville), the incoming Senate president, all of which baffled Arkansas Health Exchange director Cynthia Crone.

“That’s just not true,” Crone said. She said that she has since thoroughly researched the issue, checking with the Treasury Department, the IRS and numerous other relevant federal agencies and has received “full authority that there is equal implementation” of the law regardless of who runs the exchange.

Bledsoe was upset that Crone did not know about the libertarian legal theory at the time. “Here’s the thing,” she said, “we’re on a fact-finding mission on all of this and I think you need to look at all the different think tanks. And I’m just reading, I’m not involved like the Insurance Department should be. Why did they not know some of these things? That was a problem, I thought.”

While Cannon thinks that Arkansas should have rejected even a partnership, he said that the state was better off with that than running its own exchange, because now individuals, employers and the state itself may be able to challenge penalties that he believes are illegal. As Bledsoe noted, if successful, that would lead to the “collapse” of the statute.

“People can challenge anything and they do, but we’re not concerned about this challenge,” Crone said.


Lamoureux said that he will “definitely” be watching the Oklahoma lawsuit and House Majority Leader Bruce Westerman (R-Hot Springs) said, “I’ve heard the arguments. I’ve read the information, but I don’t know that anybody’s got a definitive answer on that.”

Not all Republicans think the legal avenue will lead anywhere. “That discussion is out there,” Sen. Jonathan Dismang (R-Beebe) said. “To be honest I think we’ve already had the lawsuit so I’m not going to base anything that I do around the possible outcome of some future lawsuit.” Dismang nevertheless opposed a state-run exchange.

Whether or not legal challenges to federally run exchanges have legs, the national conservative movement and anti-Obamacare dogma is also likely to color the coming debate on Medicaid expansion. The focus on state lawmakers from national activists is not new — as far back as last spring, the Tea Party group FreedomWorks hosted a panel titled “How to Stop ObamaCare at the State Level,” featuring Cannon and Herrera.

Given the influx of more than a million dollars from Americans for Prosperity into the last legislative elections, it’s fair to assume that outside money will play a role in the Medicaid expansion debate and that the ideas of movement conservatives may get as much traction as Arkansas’s parochial concerns.

Cannon predicted that while Republican legislators might be tempted by the federal dollars that come with expansion, they will face political pressure to vote against it.

“The Republican base still hates this law,” Cannon said. “Lots of folks in the GOP base were totally disheartened by what happened in November. They’ve been looking for an outlet for their frustration, and they’ve found it in [opposition to] Obamacare.”

“Republican politicians have ambitions,” he added. “And they know they will be fighting an uphill battle if they are the guy who implemented Obamacare. And that includes state legislators.”