• With: Scott Walker, Joe Rago, Mary Kissel, James Freeman, Bret Stephens

    This is a rush transcript from "Journal Editorial Report," November 24, 2012. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," with a second term secured, is ObamaCare now a sure thing or can Republican governors disarm the controversial law? We'll ask Wisconsin's Scott Walker.

    Plus, get ready for the regulatory flood. From health care to financial services to energy, a guide to the new rules about to hit our already fragile economy.

    And as fiscal cliff talks continue, big defense cuts are still on the table. So should Republicans embrace the sequester or make a deal to avoid it?

    Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    With his second term now secure, is President Obama's signature health care law a sure thing. From health insurance exchanges to a vast expansion of Medicaid, ObamaCare is heavily dependent on state implementation. And a growing number of the nation's 30 Republicans governors are saying they won't do the federal government's bidding.

    Wisconsin's Scott Walker is one of them, and he joins me now.

    Governor, great to have you with us.

    GOV. SCOTT WALKER, R-WIS.: Paul, good to be with you.

    GIGOT: So when you wrote to the HHS Secretary Kathleen Sebelius, you said you weren't going to set up a state exchange, because you wouldn't have the flexibility to make it work. Why don't you elaborate on what you mean by lack of flexibility?

    WALKER: From all the talk, each of us as governors can comply with the law one of three ways, a state-run exchange, a partnership or deferring to the federal government. For any of the folks who rely on me to have a state-run exchange, they need to realize, in the end, there is no flexibility. In terms of final outcome, there is no substantive difference between each of the three options. All of them lead to a federally run exchange one way or the other. A great example of that, I was talking to my friend Gary Herbert, the governor of Utah.

    GIGOT: Right.

    WALKER: Utah, Paul, as you know, and as probably most of your viewers know, year ago, five or six years ago, set up an exchange and did it in a free market way. They did it working with small businesses in their state. They have one of the lowest costs of any state in the country when it comes to health care. They still have quality health care, but they did it through a market-driven exchange. According to my friend, Gary Herbert, that doesn't qualify under the new Affordable Care Act and they're going to have to come back and put in place something that more aligns them with what the federal government wants.

    To me, you get the exposure without any of the flexibility. That's not a good deal. And on behalf of the taxpayers in my state, I said, no, thank you, we'd rather have the federal government, not only take on the responsibility, but the responsibility to pay for it and not defer that to our tax base.

    GIGOT: Isn't there a risk though that if the federal government runs the entire show that you guys will be cut out totally and, basically, you'll have even less room for maneuver. Your companies in the state, your providers in the state will really have to march entirely to Washington's dictates?

    WALKER: Well, there is. And there's that risk, but the reality is, we looked at this -- in fact, we looked at it laterally two years ago. December of 2010, right after the election, I and a bunch of other news governors in both parties went to the White House, went to the executive office building with the Secretary Sebelius and others, and they talked about flexibility then. The reality is the flexibility was limited mainly to things like how many staff and the state do you have? Do you have a handful, like Utah, or do you have hundreds like Massachusetts. In terms of regulation of what has to be included and how it's governed in your state, those things are essentially dictated through the federal government. And for all the talk about flexibility, it really doesn't happen.

    I've got to tell you though, as a governor who believes in federalism, and believes in the 10th Amendment, instinctively, my gut, when given the chance on anything, is to have the state run it over the federal government. You look at things like the food stamp program, food share --

    GIGOT: Right.

    WALKER: -- you look at things like special education, that's a mandate that for years has been mandated by the federal government in the states and the school districts in our country, and never comes close to covering the costs of that. I think that most of us who said no and deferred to the federal government did so because we didn't want the cost incurred upon our taxpayers.

    GIGOT: As the law is drafted, I gather that the subsidies can only flow through state exchanges. That is the subsidies for individuals to have health care. Now, if the federal government delivers the exchange in your state, runs it, then, at least as drafted, the subsidies will not be able to flow. Was that part of your calculation as well on this decision?

    WALKER: No, I think, in the end, there's a series of things, that being one of them, some other things in terms of insurance regulation in the state, beyond the exchange itself, those are things all of us, including some Democrats who did the same thing we did and deferred to the federal government, we're going to come back to the Congress and work with members of both political parties. I think those are reasonable adjustments, technical-type adjustments that the Congress should be able to make going forward. Because as you know, and again, your viewers know, most of those decisions were made a few years ago, about this time of year, late in the game, without any real input from governors or, for that matter, just about anybody else. And these are the technical things, if they're going to have it, at least make it work.

    I objected to it, fought it in court, and fought it politically. I lost those battles. I've conceded that. I've conceded that, at least for the time being, there will be exchanges in my state. They just won't be run by the state.

    GIGOT: Right.

    WALKER: But I think if you're going to make it work, most people realize there has to be some technical adjustments.

    GIGOT: One of the things you did win on in the court case was Medicaid. So now states have the option of opting out of the Medicaid expansion. That is a big part of this bill. Have you made the decision on Medicaid yet? Are you going to opt in or out?

    WALKER: I have not. But I've got to tell you, as much I did about the original question, I have, as do governors in both parties, some real hesitations about the expansion. In our state, for example, Wisconsin already has over 90 percent of our people covered. And we have one of the most extensive coverage systems in the country. So that's part of the reason we fought the bill in the first place. We already do it well. There's a small number of people, why blow up the system for that?

    But having said that, our real concern, it's 100 percent reimbursement for this expansion for the first three years under the terms of law itself. You just read it three years from now, it drops down to 90 percent. Any of us who have dealt with the federal government before in anything else, and special ed is a good example I gave before, know they come nowhere near those sorts of goals several years after the legislation. And so I think many of us are concerned looking ahead to the future saying, are you going to add massive numbers of people on Medicaid, some in more states more than others. In ours, it would be a relatively minimal number compared to other states. But still, would we be adding people and not have the funding. And that's assuming they comply with the law. In light of the fiscal deliver and everything else out there, there's a very real possibility, even within the next year or two, that Medicaid funds to the states might be reduced. And without true flexibility through a block grant, we have a real tough time dealing with what we have today, let alone adding more.

    GIGOT: What's your estimate of the number of people to add on Medicaid in order for the expansion? Do you know that off the top of your head?

    Walker: That varies. That's one of the challenges with this whole law, not just on the Medicaid expansion but even in the terms of the law itself. When we look at the exchange, we thought the cost of just the exchange could go up to as much as $60 million. For us, the number that would be eligible fluctuates depending on what we can do with the rest of our population. I think for a lot of governors, that's a part of the concern. If we had a concrete answer to this, it might be easier to make those decisions. But we keep sending questions to the administration, not just from the Republican governors, but through the National Governor's Association, and we repeatedly we get letters back that really don't answer those questions. And that's part of the problem.

    GIGOT: All right. Well, Governor, thanks so much for being here. There's going to be a big debate and I'll watch your decisions carefully.

    Thanks so much for being here.

    WALKER: We will, indeed.

    And go Packers on Sunday night.

    GIGOT: All right. I agree.

    All right. And when we come back, after laying low in the run-up to the election, President Obama's army of regulators is about to make up for lost time. From energy to agriculture to financial services, a look at some of the new rules coming your way in a second Obama term.


    GIGOT: Well, all was quiet in the lead-up to the election, but President Obama's army of regulators is now back in formation, ready to issue new rules on everything from health care exchanges to greenhouse gases.

    Here with a rough guide to what's coming down the regulatory pipeline in a second Obama term, Wall Street Journal, assistant editorial page editor, James Freeman; and editorial board members, Mary Kissel and Joe Rago.

    So, Joe, give us a big picture sense here of what -- what are the magnitudes of what we're talking about? A lot of these rules are -- $100 million rules or more in terms of cost, aren't they?