Inaction is a pretty sad version of federalist experimentation

Normally I'm not too impressed with what Reason.com puts out. It often deals with horse-race kinds of politics, and doesn't discuss economics as often or nearly as well as other libertarian sites I follow. So I was eager to read their post on opportunities for federalism in Obamacare this morning, by Peter Suderman.

Unfortunately, it left a lot to be desired and is really a depressing look at what "federalism" means for them.

Federalism and the decentralization of decision making is a critical component of American political economy because it (1.) makes the whole system more robust to bad decisions by policymakers by not putting everyone in the same boat, (2.) encourages good decision making among policymakers because they have to deal with people voting with their feet and wallets, (3.) allows policymakers to learn from the experimentation of others, and (4.) allows policymakers to tailor what they do to the unique needs of their own constituencies. There are probably more benefits you could come up with for the decentralization of power (including simply the democratic principle that the power is closer to the people, which could be slotted under 4) but these are some big ones.

Suderman's view of federalism and Obamacare, though, is that states now have the ability to opt out of Medicaid expansion and he argues that if they opt not to create their own exchanges (something they always had the freedom to do), it looks like HHS may not be in a position to set up a federal alternative and the IRS may not be in a position to provide low income subsidies in that state.

In other words, for Suderman federalism = the opportunity for inaction.

That is very sad in my view. Federalism is really about different people trying out different things and learning from their mistakes and from each other. It's about the strength available through institutional diversity.

There is a word states simply rejecting a federal decision, but the word Suderman is looking for isn't "federalism" - it's "nullification". Those are two very different things.

I've presented a rough sketch of my ideal health reform on here before, but it's worth mentioning it again. Forget the mandate. The problem is a lack of insurance by those who would like to have it, so provide sufficient low-income or even middle income subsidies. That's how you address people's inability to get insurance when they want it - not by mandating them into insurance companies' revenue streams. Many people are going to have trouble getting insurance, so require states to develop either a public option or a private exchange, giving wide latitude for how these would be implemented. The public option is important. Exchanges rely on the current private insurance system that is resulting in double the prices for the same care. Introducing public options to compete with that can only improve the cost problem. States face relatively hard budget constraints. If they mess up and create a real albatross of a public option, they'll pay for that. Public options will also help push out new approaches to the payment system (i.e. - moving beyond fee for service) in a way that exchanges couldn't.

If some day in the future this federalized system converges on a real solution to health care, maybe we can apply it nationally. Federalism is not static.

But there's no point in celebrating a federalism that simply amounts to vetoing Obamacare. You don't like Obamacare - I get it. I don't like big parts of it either. But just not doing Obamacare isn't particularly enticing either, and it isn't particularly federalist.