Frequently Asked Questions
What is an interstate compact?
An interstate compact is an agreement between 2 or more states. When individuals or corporation reach an agreement, they create a contract. When states reach agreement on something, they create a compact.
When an interstate compact is approved by Congress, it becomes federal law, and supersedes previous federal law. There are over 200 interstate compacts in existence, 90 of which have been approved by Congress.
Interstate compacts predate the US Constitution. They are very powerful legal tools for states to collaborate.
A partial list of interstate compacts is available on Wikipedia. There is also a searchable database of interstate compacts at the National Center for Interstate Compacts at the Council on State Government. There is also an excellent collection of information on interstate compacts at Ballotpedia.
There is a growing body of research and analysis around interstate compacts and their potential uses in the public policy arena.
Interstate compacts are a way to move control from the federal government to the states. They can only do so with the approval of Congress. The US Constitution addresses interstate compacts directly in the Compact Clause, in Article One, Section 10:
No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State
Over time, the Supreme Court has interpreted this clause more broadly than its plain reading. Today, states are free to form compacts so long as they do not infringe upon the supremacy of Congress. If they do, they must get Congressional approval.
This condition is not a problem for the HCC, because we are going to insist upon Congressional approval. We believe that the Constitution is the best guide for state-federal interaction. We do not believe in nullification; rather, we will demand that Congress explicitly comply with the demands of the states.
Can states really do a better job of regulating health care?
The Health Care Compact moves the responsibility and authority for regulating healthcare from the federal government to the states. Is this a good idea?
Yes, for two primary reasons:
- Healthcare is simply too large and complex to manage at the federal level.
- States have generally been shown to be more effective regulators than the federal government.
To demonstrate the challenge of regulating healthcare at the federal level, consider the following facts:
- A federal system impacts 300+ million people
- Healthcare spending exceeds $2.3 trillion annually
- More than 14 million people work in the healthcare industry
- There are 2,688 pages of regulations for Medicare and Medicaid
Centralized planning of an industry that is this large and complex is not possible, and has never been successful in the history of mankind. By comparison, the US military "only" spends about $1 trillion and employs about 2.5 million people - and has the benefit of providing a public good, rather than a consumer good.
By pushing responsibility and authority down to the states, the problem becomes much more solvable. Many states have only a few million citizens, and there are dozens of developed countries in Europe and elsewhere who have effective regulatory regimes operating at this scale.
With regard to the second reason, when comparing state vs. federal regulation, ask yourself the following questions:
- Which transportation system runs more efficiently? Your state highway system or Amtrak?
- Would your state university get better results if it was run by the Department of Education?
- Which security system is more responsive and effective? Your local sheriff's department or the TSA workers at the airport?
- Which has to operate with a balanced budget? Federal or state government?
State governments, of course, are not perfect. State officials have the same sorts of incentive and power relationship issues as federal officials. But they serve smaller districts, live closer, and are more accountable to their citizens than the bureaucrats in Washington DC. And the elected officials are easier to replace because of small district sizes.
Given a choice between a state-based and a federally regulated healthcare system, we believe that the people will prefer returning responsibility to the states.
Does the Health Care Compact impose a particular health care system on the member states?
No. States are free to choose their own health care policy solutions.
Healthcare policy is about who and what is covered.
The Health Care Compact is about who decides.
The Health Care Compact is silent on the sort of healthcare regulatory regime a state must adopt. Some states may be attracted to a more regulated system built around accountable care organizations. Other states may decide to implement a single-payer system. Still others may create a consumer-oriented, market-based regime. And some may choose to experiment with hybrid systems.
Even the role of the state itself may vary considerably. Some states, particularly less populous ones, may choose to promulgate all of their healthcare regulation at the state level. Others, perhaps the larger ones, may choose to push authority and responsibility further downstream, to the county level.
The point here is that the Health Care Compact will take the authority and responsibility for healthcare regulation from the federal government and move it, lock, stock, and barrel, to the states.
How is the Patient Protection and Affordable Care Act (“Obamacare”) effected by the Health Care Compact?
The Health Care Compact renders Obamacare inoperable in states that join and pass replacement legislation. It is not, strictly speaking, repeal. It just allows member states to suspend its operation their states.
The Health Care Compact creates a "regulatory shield" for states to free them from federal regulations, giving them the ability to design their own system. It does this by:
- Giving member states primary responsibility for healthcare regulation
- Making state healthcare laws supersede federal healthcare laws
These provisions, taken together, allow states to render Obamacare ineffective in states that join the Health Care Compact.
Will the Health Care Compact increase bureaucracy?
No, because the Health Care Compact does not create a commission that can bind the member states. The commission is a non-binding advisory commission.
There are two different models for interstate compacts. One model is reciprocity, where individual states reach agreements to cooperate as peers. Under the reciprocity model, there is no interstate compact commission that has authority over member states. No sovereignty is yielded to a compact bureaucracy - if states don't reach agreement to cooperate, they cannot be forced to do so.
The other model is harmonization, which occurs when an interstate compact forms a commission that is given certain responsibilities by the compact document. Under the harmonization model, the commission can develop rules and regulations that are binding upon the member states. As such, states effectively cede some of their sovereign authority to the commission.
The reciprocity model is the basis of the American system of federalism; harmonization is the model employed by the European Union. Given the long and robust history of the federalist model, the decision was made to employ reciprocity as the model for the Health Care Compact.
So, given that the commission created by the Health Care Compact cannot bind the states, concerns about the emergence of an unaccountable, run-away bureaucracy are unfounded.
What about nullification?
Nullification is a very different approach to the same problem we’re trying to address (concentration of power in Washington DC). HCC has states acting together to directly confront the federal government. Nullification has individual states put its citizens into a conflict with the federal government, because it forces citizens to decide which conflicting law to obey. Both nullification and the HCC cause a conflict between state and federal governments; however, the HCC does not put individual citizens in the middle of the conflict. In addition, a compact allows states to control the timing of the conflict, while nullification allows the federal government to respond to the conflict at a time of their choosing.
Can states write their own compacts?
Yes, but they are better off joining a single large compact.
Can states enter into multiple health care compacts? Would this be better?
States can enter into multiple compacts, but it is better if there is one compact joined by all states. Uniting states into a single compact will increase their ability to compel Congress to consent to the compact.
We believe that having the states united in confronting the federal government is better politically.
Can states put in place health care systems of their choosing?
Does it impose anything immediately?
No. It simply transfers decision-making power and control of funds from the federal government to the states.
If you’re doing this, why are you sending money to the feds in the first place?
The Constitution grants taxing authority to the federal government, and the money they are collecting is pursuant to their legal authority. The HCC is a governance reform, not a tax reform.
What would prevent the administration from hindering this after Congress ratifies? (i.e. regulatory expansion, etc.)
Federal law defines the administration’s scope of activity. Because the HCC transfers authority to the states, health care laws enacted by states under the HCC supersede federal regulations. This means that even if future administrations take action, states can simply pass laws that supersede those regulations. Congress still retains the ultimate control, and can pass laws that undermine state regulation. However, the compact states have a strong blocking position in Congress, minimizing the potential for troublesome meddling.
What happens to the HHS rules that have already been, or will be, put in place? (two step process)
State law supersedes those rules. So, by enacting new health care regulations at the state level, those rules become inoperable.
What happens as health care expenditures go up as PPACA goes into effect as far as the “block granting” process? (Tying it to a funding level? What happens because some states don’t sign on?)
The member states get funding according to the formula in the HCC. If states choose to stay in the federal system, they will have to come up with the money required to pay for the benefits. For this reason, we expect most or all of the member states to move quickly to adopt their own rules and regulations. Given the waste and inefficiency in the federal system, we expect the states to enact laws that will save money and improve coverage.
Can Congress revoke a compact?
This is a subject of some debate. There is not a mechanism for revoking consent in the Constitution. However, it is likely that Congress could revoke consent at some future time. This is why it is important for compact states to be vigilant and use their Congressional delegations to block any attempt at revocation.
How does the compact relate to free markets (i.e. buying insurance across state lines)?
The HCC allows any number of potential reforms, including the creation of market-based systems or sale of insurance across state lines. What eventually gets passed will be up to citizens and their state legislators.
How do citizens affect the type of policy that replaces the current system?
By engaging with their state legislators as they design a set of replacement regulations. Ultimately, citizen influence over legislation is a function of the level of citizen engagement, both in the legislative and electoral process.
Why would state legislators want to take on this extra risk and responsibility?
Hopefully, state legislators’ primary motivation would be doing what is in the interest of their constituents. Federal control of health care has proven to be disastrous for our economy and our culture. Other positives include the control of federal health care funding in their state, the ability to design a regulatory regime that is more beneficial to the citizenry, increased job creation due to reduced red tape, and the ability to collaborate with other states in developing innovative policy solutions. The negative would be that if they don’t take responsibility for protecting their state from the federalization of health care, they will have to deal with both the fiscal and electoral consequences.
Why would Congress want to give up their power and ratify?
They certainly won’t want to, but they will have to. If they don’t, each member will be vulnerable to a primary challenge in the next election cycle. That being said, there are several benefits to Congress: it fixes the federal government’s fiscal exposure to health care costs, eliminates the unfunded liability from the federal level, and allows for states to take an customized, incremental approach to reform.
What happens to the money that is saved, if any?
The savings, up to the amount of current state health care funding, go to the state. Here’s how it works. Texas, for example, gets about $46 billion from the federal government for health care, and spends about $9 billion of its own tax money, for a total of $55 billion. If Texas is able to save 10% of this cost by enacting its own reform program, the total expenses fall to $49.5 billion. This reduces state expenditures on health care from $9 billion to $3.5 billion. The $5.5 billion of savings can then be used on other state programs, or returned to taxpayers through lower taxes.
How does money get saved?
Through better health care policy design. For instance, corporations that have used Health Savings Account programs with high deductibles have found that health care costs have dropped significantly. If such a program were implemented on a state-wide basis, the savings to the state could be considerable. Other states may decide to implement a single-payer system with strict cost controls. The reality is that there are many ways to contain costs in the health care system; the states lack the authority to implement these sorts of innovations.
If the President doesn’t need to sign the compact, isn’t it worse to try to get him to sign it knowing that he probably won’t?
This is a tactical question that cannot be answered with certainty at this time. We believe that the states should reserve the right to proceed immediately after Congress consents. However, if it appears that the President is prepared to sign the HCC, that would be the optimal solution, as it avoids the uncertainty associated with the inevitable litigation that would follow if presentment is avoided.
Can we use this compact for other issues besides health care?
Yes. Every incursion of the federal government into areas that are not specifically enumerated in the Constitution could be restored to the states using the compact approach.
What is the commission?
Compacts are contracts that involve joint action between states. In order to assure that the HCC is not vulnerable to a challenge on this basis, the HCC establishes a commission. The commission has three primary functions:
- Study health care in the member states. The commission’s recommendations are not binding upon the states, but provides a great vehicle for states to learn from each other’s successes (and failures). There is no impairment of state authority over health care in their state.
- Gather information on health care in member states. One of the most defective aspects of the current health care system is the lack of information available to states, businesses, and citizens about health care costs. By gathering this information and making it public, purchasers of health care will be able to make more informed decisions.
- Provide a framework for future cooperation between the states. Should states decide to collaborate in particular areas (e.g. sale of insurance across state lines, pooling of risk, etc.), they can create a mechanism for such collaboration within the compact, without having to seek additional Congressional approval.
What happens when people move to different states that have different compact status?
The precise answer to that question will depend upon how the federal government handles health care in non-compact states, as well as how member states design their regulatory regime. In general, the insured and insurers will pay providers, and the form of this coverage will be regulated by states. So, if you move to a new state, you will have to purchase insurance as regulated in your new home states. The reality is that there are already substantial differences in payment levels from state to state, but few people migrate simply due to these differences.
Aren’t we just giving profligate state legislators the power to spend the money?
Any legislator who is not monitored and held accountable by an engaged electorate will become more profligate over time. That being said, state legislators are much more fiscally responsible than federal legislators. There are two reasons to expect state legislators to be more responsible than Congress:
- They serve smaller districts with greater proximity to the bureaucracy. The average US House district has more than 700,000 people; the average State House district has fewer than 60,000 people. Smaller districts increase the ability of citizen groups to influence their representatives.
- They must balance their budget, and are not able to “print money” to fill in budget holes. These constraints act as a natural control mechanism for state legislatures in a way that doesn’t apply to the federal government.
These reasons go a long way toward explaining why federal deficits are more than 10 times larger than the budget shortfall at the state level. So the profligacy of states is not in the same league as federal profligacy.
What about liberal governors?
We expect liberal governors to be attracted to the authority and funding that they will control under the HCC. There is a growing frustration all along the political spectrum for centralized federal control of health care. And since the HCC is really about who decides, we believe all governors – liberal or conservative – to prefer having more decision-making authority.
Why not just use repeal and replace? Why spend all the extra time getting it through state legislatures?
If repeal and replace were feasible, this might be an attractive approach. However, the federal government has shown no ability to enact reasonable and effective health care regulations – regardless whether Republicans or Democrats controlled Congress and the Presidency. The fact is that repeal and replace will still result in a centrally-controlled, top-down regulatory regime, and this is the fundamental flaw in our health care system.
Won’t the resistance in Congress be the same for a compact as for repeal legislation?
Perhaps. But the big difference between the political strategies is that repeal relies on direct citizen action in Congress, while the HCC harnesses the political strength of state officials in the fight with Congress.
How does the mobility of Medicare patients come into play?
As states design systems to replace the federal regulatory regime, they will have to be responsive to senior citizens’ needs. If they provide an inadequate system, seniors will move to other states, taking their spending power with them. Additionally, because seniors tend to vote more frequently than younger citizens, they are in a stronger position to have their voice heard by state legislators who will be responsible for setting up the health care system. Finally, if a state is overly generous with senior benefits, it could cause more seniors to relocate to that state, adding to the fiscal pressure on legislators.
The reality is that health care costs are only one component of a senior citizen’s mobility. Family, home ownership, taxes, environment, etc. contribute as much or more to these decisions. But a system in which health care costs are ignored in residency decisions leads to dysfunctionality and unsustainability.
How do we answer the question of what happens to Medicare, and why is the compact system better?
The Medicare system was unsustainable prior to PPACA. There was a $70 trillion unfunded liability that would have forced dramatic cuts in payment and coverage to prevent fiscal collapse of the entire nation. The result would have been severe rationing of health care for seniors, managed by a distant and unelected federal bureaucracy.
The President deserves credit for identifying health care as in need of urgent reform, but PPACA will not fix the problem; in fact, it will accelerate the inevitable rationing. By transferring funds from Medicare to pay for a new health insurance entitlement, projected reimbursement levels for Medicare are scheduled to fall to Medicaid levels in the future. At these levels, physicians will exit the system in large numbers, leaving seniors with even fewer choices and longer waits.
So, it is fair to say that the HCC represents one of the only ways to provide sustainable health care for senior citizens. It provides a pathway to sustainability that has never been achievable at the federal level. It does this by putting states in the position to drive reforms that are more responsive (because they are closer to their constituents), more customized (because states have more flexibility to adapt to local conditions), and more fiscally responsible (because states must balance their budgets).
Can we have a list of general alternatives to list as options, without specifics, so that people can at least have a vision of options?
Sure. Here are some alternatives:
- Single payer government system. A state can impose a tax on its citizens, and use the proceeds of that tax to pay for all health care consumed by its citizens.
- Health Savings Account system. Individuals are issued a “Health Card” tied to a savings account. Individuals and employers can “charge” their card by making contributions to the account. The state can provide subsidies to low-income people to provide a minimum level of care. A small tax would be imposed to pay for catastrophic care above some (high) level. Individuals can purchase insurance, or can pool their funds to buy small group insurance (as in the case of families). Risk-averse people can purchase low-deductible insurance; others will opt for high-deductible plans. Account balances can be used to pay for insurance, deductibles, and non-insured health care costs. Lenders can provide funds, using future contributions as security. Charities can supplement low-income contributions from the state for certain populations. Expenses above the catastrophic threshold are paid by the state out of tax proceeds.
- Statewide ACO system. A state could contract with a number of accountable care organizations (a hybrid of insurance company and health care provider) to provide health care on a capitated basis to low income and senior demographics. This would essentially be a private sector replacement for Medicare and Medicaid, where ACOs would provide a “medical home” for all health care needs, and manage expenses. People would have a variety of options to choose from, both in terms of providers and plans.
There are any number of combinations of the above, and other possibilities as well.
How do you reconcile the lawsuits to the unconstitutionality of the individual mandate with the idea that compacts say that the feds have authority but that states are asking for it back.
The question of the supremacy of federal law to state law is a separate and distinct question from the proper scope of federal law. The first question is the central question of the HCC – by joining a compact and obtaining Congressional consent, states are put in a position of creating laws that are not pre-empted by federal law. The second question is really what the litigation is about: can Congress pass a law requiring individual citizens to purchase a good or service?
Because these two questions are quite distinct, the HCC is an excellent complement to the AG lawsuits. If the AGs win, a federal law cannot impose an individual mandate, which means that states cannot impose such a mandate either, since even a superseding state law must be constitutional. But if the AGs lose, states will then have the authority to undo the individual mandate at the state level, since a law banning the mandate in a member state would supersede federal law.
The HCC does not either explicitly or implicitly take a position on whether the federal government can impose an individual mandate. That is a question that must be resolved by the federal courts, and ultimately the US Supreme Court.
Why does the compact have to go through Legislative Services? I thought it didn’t need to be tweaked?
Every state’s legislature has a slightly different process. Some will have to pass the HCC as legislation, others as a resolution, still others as a delegation of authority to the Governor or Attorney General. While minor differences between states can be tolerated, it is best if the compact language adopted by every state is identical.
Where can I find more information?
The Health Care Compact Alliance website:
How many states are considering the Health Care Compact?
The final language of the Health Care Compact was published on 23 February 2011. At that time, the Health Care Compact Alliance had teams on the ground in 37 states. The HCC has been introduced (or is being prepared for introduction by a legislator) in 10states, and meetings with legislators in other states are beginning to ramp up.