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Why AZ businesses should oppose the ObamaCare exchange

November 08, 2012 J,

Updated 28 Nov 2012 — WE WON! Click here for more information.

Why Arizona business leaders should oppose efforts to establish  a PPACA/ObamaCare Exchange

For a printable copy, click here:
AZ ObamaCare exchange briefing paper

•  Arizona is under no obligation to create an Exchange. 

The PPACA/ObamaCare does not mandate that Arizona establish an Exchange, because that would be an unconstitutional commandeering of state resources. Arizona has a choice.

• Creating an Exchange would enable the IRS to impose job-killing taxes on Arizona employers.

PPACA/ObamaCare ties hundreds of billions of dollars in subsidies to private health insurance companies to job-killing taxes on employers. The law intentionally and purposefully authorizes those subsidies and taxes only if Arizona establishes its own Exchange. Under the statute, the IRS has zero authority to tax Arizona employers through a federal Exchange.[1]

If the Brewer Administration and the Legislature establish an Exchange, they will enable the IRS to impose a $2,000 per-worker tax on employers that do not offer “essential” coverage, and a tax of $3,000 for each worker whose “essential” health benefits are not “affordable.”[2]

Arizona would lose jobs to states that do not impose that tax on employers (e.g., Texas), eroding the tax base. If Arizona refuses to establish an Exchange, it can lure jobs away from states that do impose that tax (e.g., California).

The pro-Exchange campaign has been led by insurance companies and others seeking these subsidies, without regard to the impact those taxes will have on Arizona’s job creators.

•   Creating an Exchange would not give Arizona greater control over health care. 

The federal government will have total control over a state-created Exchange. The PPACA/ObamaCare gives the U.S. Secretary of Health and Human Services nearly unlimited power to impose on state-created Exchanges “such… requirements as the Secretary determines appropriate.”[3]   It empowers her to approve or deny all state-created Exchanges.[4]  It prevents states from passing laws “that conflict with or prevent the application of regulations promulgated by the Secretary.”[5]

The only option a state-created Exchange could exercise would be to give employers fewer choices than the federal government allows.

•   An Exchange would drain untold tens of millions of dollars from state coffers annually. 

Estimates conducted for other states indicate an Exchange could cost $100 million per year, but no one can say how much it would cost Arizona.[6]   If Arizona refuses to create an Exchange, the federal government has to pick up that cost.

•   There’s no information.

State officials have sent dozens of questions to the Obama administration about the requirements for state-created Exchanges and how federal Exchanges would operate.[7]  States need this information to make decisions about whether to invest the significant resources required to create Exchanges. The Secretary has not provided answers, and does not appear eager to do so.

•   There’s no rush.

If Arizonans decide they don’t like a federal Exchange, the state can always change its mind and switch to a state-created Exchange later. And the Secretary has indicated that states that choose not to create an Exchange will not have to return grants they have received for that purpose.


1 Adler, Jonathan H. and Cannon, Michael F., Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA (July 16, 2012). Health Matrix: Journal of Law-Medicine, Forthcoming; Case Legal Studies Research Paper No. 2012-27. Available at SSRN: http://ssrn.com/abstract=2106789.

2 Internal Revenue Code Section 4980H.

[3] Patient Protection and Affordable Care Act, Section 1321(a)(1)(D).

[4] Patient Protection and Affordable Care Act, Section 1321(c).

[5] Patient Protection and Affordable Care Act, Section 1311(k).

[6] See Robert L. Carey, “Financial Sustainability of the Alabama Exchange,” November 2011; Mercer, “Health Insurance Exchange Planning Report: State of Connecticut,” January 19, 2012; Wakely, “Illinois Exchange Strategic and Operational Needs Assessment,” September 2011; Wakely, “Maryland Health Benefit Exchange: Financing the Exchange Vendor Report,” November 7, 2011, Commonwealth Health Insurance Connector Authority, “FY 2011 & FY 2012 Administrative Operating Budget,” June 9, 2011, Milliman, “Financing Options to Sustain Ohio’s Exchange,” August 2011, Oregon Health Insurance Exchange Corporation, “Oregon Health Insurance Exchange Corporation Business Plan,” February 2012, Silver State Health Insurance Exchange, “Report: Finance and Sustainability Advisory Committee,” March 19, 2012; Burns and Associates, “Vermont Health Insurance Exchange Planning: Task 6.0: Analysis of Exchange Financial Functions,” August 30, 2011.

[7] Letter from the Republican Governor’s Association to President Barack Obama, July 10, 2012, http://rgppc.com/medicaid-and-exchange-letter-2/.

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