By Lisa Lambert
WASHINGTON (Reuters) - As Republican governors take on the U.S. healthcare reform law in courts, they are also challenging it on the administrative side, with 21 registering their discontent for insurance exchanges in a letter to U.S. Health and Human Services Secretary Kathleen Sebelius on Monday.
The reform act, which President Barack Obama signed into law last March, "is seriously flawed, favors dependency over personal responsibility, and will ultimately destroy the private insurance market," the governors wrote in the letter.
"Because of this, we do not wish to be the federal government's agents in this policy in its present form," said the group of states' heads, which included Texas Governor Rick Perry, Indiana Governor Mitch Daniels, Mississippi Governor Haley Barbour and Louisiana Governor Bobby Jindal.
They added that if Sebelius does not agree with their requests for modifications, then the U.S. government "should begin making plans to run exchanges under its own auspices."
The law requires health insurance exchanges -- open marketplaces for purchasing insurance -- to come on-line by 2014 and gives states the option to starting their own exchanges, banding together to create regional ones, or not establishing one at all.
If a state chooses not to establish an exchange the federal government would then step in to operate one.
The governors said they want "complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products."
More than half of all states are challenging the health care law in federal court. Recently, a Florida court ruled that the reforms are unconstitutional and invalidated the entire law and Virginia has sought to bypass the appellate courts to bring their challenge directly to the Supreme Court.
At the heart of the legal challenges is the requirement that all Americans buy health insurance or pay a fine, which many states say overreaches the authority given to Congress by the U.S. Constitution. But states' administrative challenges mostly revolve around money and politics.
Since the law was passed, many state leaders and insurance commissioners have worried about covering the costs of putting it in place. States must implement some of the most important reforms and many cannot afford to build up staffs or computer systems in the aftermath of the 2007-09 economic recession.
Meanwhile, many Republicans won state office in November's mid-term elections on criticism of the law and must now make good on their campaign vows to undo its requirements.
Last week, some states picked a public fight with Sebelius about how Medicaid, the healthcare program for the poor which is partially reimbursed by the federal government, is operated under the law.
The law made more people eligible for Medicaid, but also increased the reimbursements for new enrollees. Nonetheless, many governors say they cannot afford the changes. Sebelius sent them a long memorandum pointing out areas where they could find savings.
In Monday's letter, the Republican governors expanded their complaints about Medicaid to encompass the exchanges, asking Sebelius to "commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation...and at what potential cost to state governments."
They also asked Sebelius to deliver a comprehensive plan for verifying incomes and subsidy amounts for those who participate in exchanges, which would be federally funded.
"We hope the administration will accommodate our states' individual circumstances and needs, as we believe the (law) in its current form threatens to destroy our budgets and perpetuate and magnify the most costly aspects of our health care system," the Republican governors wrote.
(Additional reporting by Karen Pierog in Chicago)
(Editing by Theodore d'Afflisio)