Will Wisconsin’s Scott Walker implement health-care reform?

(ANDY MANIS/ASSOCIATED PRESS) Wisconsin’s closely tracked recall election may have wrapped up, but don’t stop paying attention to the Badger State. Wisconsin is shaping up as a crucial test of how much Republican cooperation the Obama administration will get in implementing the Affordable Care Act.

The issue here is a battle over health exchanges, the new insurance marketplaces that the Affordable Care Act requires every state to have in 2014 (think of it as a Travelocity for health insurance). If states don’t have the exchange’s framework in place by 2013, Health and Human Services will come in and do the job.

Looking to fend off that federal intrusion, many Republican governors have accepted at least some money to plan for an exchange. A handful have even signed laws to move the implementation process forward. But lately, some key states with Republican governors have been backtracking.

In February, the Obama administration released $241 million to seven states they deemed “Early Innovators” to develop prototypes for others to follow. More than half of the money went to three Republican governors: Oklahoma’s Mary Fallin, Kansas’ Sam Brownback and Wisconsin’s Scott Walker.

It wasn’t long until the governors got political flack for accepting millions in health reform funds. Oklahoma returned its $54 million grant in April. Brownback followed suit, sending back $31 million Tuesday.

And that brings us back to Wisconsin. As of this week, it’s the only Republican-run state in the program.

“It says something that two of the states that have been given the most cash are now saying, ‘No thanks,’ especially since one of them is Kathleen Sebelius’s home state’ ” says Michael Cannon, health policy director at the Cato Institute, who has pushed Republican governors not to set up exchanges. “It’s slowly dawning on states that they’re implementing Obamacare.”

What will Walker do? He’s an interesting test case, one of the Republican governors most adamant that his state run its own exchange. For Walker, this feature of the Affordable Care Act has stood apart from the rest. “[The exchange money] is one of the few pots of Affordable Care Act funds that Walker has kept,” says Robert Kraig, executive director of Citizen Action of Wisconsin and a leading liberal activist on health care.

But Walker’s also a very active health reform critic. As governor, his first order of business was filing a lawsuit to overturn the Affordable Care Act. And he already faces similar pressures that Oklahoma and Kansas did from the law’s opponents.

“Given the current fiscal situation that the federal government has created, there should not be any money flowing from the federal government to state governments, particularly in an area where government has no constitutional authority,” said Bill Hahn, spokesman for the Wisconsin-based John Birch Society. “Wisconsin, and all other states, should not be accepting the ‘Early Innovator’ grants from the federal government.”

States rejecting health reform funds isn’t a good sign for the Obama administration. But, to be sure, it does not necessarily preclude any of these states from setting up an exchange. As the threat of federal intrusion becomes increasingly imminent, states that decided to forgo some funds may ultimately build the marketplace anyway.

They do not, however, have much time. Most states will need to pass legislation creating authority to set up the marketplace; so far, only 15 have done so. Similar bills have failed in 17 states.

“As far as undermining the Affordable Care Act, I don’t see one less Early Innovator state having any big effect,” says Timothy Jost, a law professor at Washington & Lee University. “The bigger question is: How many states are going to be ready to go? And will the federal government be ready for the ones that aren’t?”

Cullen Werwie, a spokesman for Walker, said in an e-mailed statement: “Wisconsin’s award was for a total of $49 million, which includes enhanced funding from CMS to upgrade Wisconsin’s BadgerCare Plus [the state’s Medicaid program] eligibility and enrollment systems and integrate with the new health insurance exchange. Wisconsin remains committed to using these dollars for this purpose.”

This post has been updated since it was first published.