An Interstate Compact: Serious option or political gesture?


State legislators eager to escape Obamacare’s restrictive mandates have united behind the interstate healthcare compact, a single piece of state legislation they expect to free them from having to obey federal law. S 836, recently passed in the Senate [update: it has now passed the House], would make South Carolina an official member of the interstate healthcare compact and associated advisory commission. By joining into a compact, which is essentially a legal agreement between states, each member agrees to work to regain control from the federal government over health care regulation within its own borders.

Unfortunately, an interstate compact won’t do anything concrete to improve our health care system. Inasmuch as the federal government has clear constitutional authority to regulate agreements between states, the compact must have – but is highly unlikely to get – Congressional approval. It’s even less likely that states will continue to receive their current amounts of federal health care funding under a compact system. Without federal funding, states like South Carolina would fail completely to meet their current level of obligation to Medicaid recipients, sending government-provided health care programs into a financial tailspin.

Those government health care programs need to be reformed, badly, and there’s a long way to go before private and employer-purchased health care can be said to operate in a free market. But the health care compact is a symbolic political statement pushed by national activists, not a real solution to either problem. South Carolina lawmakers would do better to focus their attention on reforming state health care programs, breaking down barriers to the free market for health care within the state, and freeing health care providers from expensive and counter-productive state regulations.

What is a compact?

An interstate compact is a legal agreement between multiple states. Once approved by Congress, whatever is enacted within the compact takes precedence over the federal laws that existed prior to the compact. Member states of the health care compact would thus avoid having to enact current federal health care reforms. The compact proposed in S. 836 would create both the compact and an advisory commission, which would provide non-binding advice to member states on health care reform.

Authority to regulate health care would still fall entirely and solely on the member states of the compact: the advisory commission has no binding authority over member states, and they are free to withdraw at any time. Doing so, however, would return authority over health care regulation within that state to the pre-compact regulatory body, the federal government.

Can it replace “Obamacare”?

The legal wrangling required to establish a state compact for health care would, ideally, provide a barrier between state legislatures and the federal government, allowing the former to regulate health care free from federal mandates. There are a number of interstate compacts, including the Colorado River Compact, the Port Authority of New York and New Jersey, and the Drivers License Compact, in which most states take part. Those compacts share one important feature that the health care compact lacks, however: none attempt to retake authority that has already been claimed by the federal government.

The legality of an interstate health care compact is heavily debated. The definitive ruling on the Compact Clause of the constitution, Virginia vs. Tennessee, states that the type of interstate compacts the federal government can deny are those that are “directed to the formation of any combination tending to the increase of political power in the states.” That is the express purpose of an interstate health care compact. Congressional approval seems, to put it mildly, improbable.

Who designed the compact?

It’s difficult to say precisely where the idea of a health care compact came from, though the text of the compact legislation is disseminated through the Health Care Compact Alliance, a nonprofit organization based in Virginia. You can view the text that made it into the South Carolina Senate bill, S. 836, at their website. A handful of states have already passed similar or identical compact legislation into law, including Georgia, Missouri, and Texas.

How will it affect health care policy in South Carolina?

Simply stated, it won’t: the compact allows member states freedom to determine their own health care policies, leaving full control of South Carolina’s health care regulation in the hands of state legislators. No specific policies are enacted by the compact, though, if passed, it will exempt states from following currently enacted federal reform policies.

What will an interstate compact cost?

The compact legislation attempts to change the current system of federal funding for health care – in which states are reimbursed yearly according to their median income and other demographic factors – into a “block grant” system. A block grant is a fixed, pre-calculated amount of money sent from the federal government to states to spend at their discretion. The interstate compact legislation projects the base funding level South Carolina will receive at $11.14 billion. This rosy projection assumes, however, that the federal government will award in a block grant precisely the amount of money that is typically awarded through the Medicaid reimbursement currently under federal control.

Is it a serious option?

While a compact might be an acceptable way to keep federal regulators out of a state, it simply replaces them with state regulators enumerated with exactly the same powers, which by itself won’t lead to a stronger or freer market for health care. South Carolina policymakers had an opportunity in last year’s Health Planning Committee sessions to work to dismantle the competition-crippling bureaucracy that has made health care unaffordable for so many citizens: yet no state-level health care solutions were put forward, or even seriously considered. It’s extremely difficult to believe, therefore, that lawmakers are suddenly now serious enough about the state’s health care problems to wish to wrest control of reform from the federal government. If state lawmakers were truly serious about creating a free market for health care, they’d propose a piece of legislation that protects the rights and powers of their constituents instead of one that protects the rights and powers of state legislatures.

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