The exchanges would create unsustainable pressures on each state's insurance market, treating similarly situated people differently by providing far greater subsidies for those in the exchanges than those in employer plans—yielding perverse incentives that distort consumer and employer decisions and increase costs.

States would endure all this simply to become functionaries of the federal government. The idea that creating state exchanges would give states control over their insurance markets is a fantasy. The states would be enforcing a federal law and federal regulations, with very little room for independent judgment.

Governors know this. A group of them has already indicated that they will not build the exchanges, and several more seemed ready to opt out as the administration's deadline for state decisions approached on Nov. 16. Predictably, Health and Human Services Secretary Kathleen Sebelius tried to head them off by extending the deadline to Dec. 14. She will try to use the extra month to twist governors' arms. They should resist.

By declining to build exchanges, the states would pass the burden and costs of the exchanges to the administration that sought this law. And it is far from clear that the administration could operate the exchanges on its own.

Congress didn't allocate money for administering federal exchanges, and the law as written seems to prohibit federally run exchanges from providing subsidies to individuals. The administration insists that it can provide those subsidies anyway. But if the courts read the plain words of the statute, then federal exchanges couldn't really function.

Thus states that refuse to create their own exchanges would effectively be repealing a large part of the law—sparing their citizens from the job-killing employer mandate and from assaults on their religious liberty. In some cases people would even be spared from the individual mandate to buy coverage, since in the absence of exchange subsidies more families would qualify for exemptions from the mandate.

The Medicaid expansion, meanwhile, would throw millions of additional Americans into a system that is already bankrupting state governments and increasing costs in the private-insurance market. Medicaid's payments for services are so low that many existing beneficiaries have trouble finding physicians and other health-care providers who will accept them as patients. Enrolling more people without reform will push the system to the point of collapse.

In refusing the Medicaid expansion, governors should notify Washington that doing so means freeing themselves of ObamaCare's "Maintenance of Effort" requirements. These would prohibit states participating in the Medicaid expansion from reforming their Medicaid systems to reduce costs.

Instead of following the Obama administration's plan, states should seek real reform.