Tinker, scrap, or start over: Let states decide how to fix health care

With Republican efforts to repeal and replace the Affordable Care Act at an impasse, the Senate HELP Committee, led by Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.), has held two weeks of bipartisan hearings on how to help states stabilize the individual market while offering consumers more attractive and affordable options. The most intriguing idea is giving states more flexibility under the law’s State Innovation Waivers. 

Innovation waivers can allow states to waive many of the ACA’s most onerous and expensive insurance regulations — including the individual mandate — in return for a block grant of federal funding. This can help states grapple with the ACA’s biggest problem: trying to sell expensive, heavily regulated insurance to the younger, healthier, and middle-income uninsured who don’t think they need it or can’t afford it. It’s like forcing insurers to sell Cadillac plans to someone who needs a Ford Fiesta. 

As a result of the mismatch, more than 12 million Americans have been granted exemptions from the individual mandate, and another 6.5 million pay the IRS a penalty rather than buy insurance.     

{mosads}Throwing more subsidies at consumers won’t make insurance any cheaper, nor does it promote competition to deliver better care at lower cost. Instead, it just shifts more costs onto taxpayers. 

Innovation waivers could allow states like Oklahoma, Indiana, Wisconsin, and Massachusetts to experiment with new and different approaches. If others, like California or New York, wanted to stick with the status quo, they could. Governors and state legislators would instantly become more accountable for finding pragmatic solutions to divisive issues that have kept the Beltway in gridlock for the last seven years.  

In testimony before the HELP Committee, Massachusetts’ Republican  Governor Charlie  Baker suggested changes that could make innovation waivers more attractive and effective, including increased flexibility for benefit design; the ability to combine savings from ACA and Medicaid waivers; and standardizing “fast-track” waivers that give states quick approval from HHS. 

Colorado Governor John Hickenlooper, a Democrat, echoed the theme of states as “laboratories of democracy,” and also pointed to state innovation waivers as a way for states to “innovate to lower costs while ensuring that certain basic guidelines are met.”

Governors Baker and Hickenlooper are on the right track. But the partisan divisions, and mistrust, in Congress won’t be solved easily. Both sides will have to offer something to get something. 

Republicans should propose a stable source of federal funding for state reinsurance programs or high risk pools. Reinsurance can help lower premiums across the board by covering part of the costs of the most expensive patients. As premiums fall, so does the need for larger federal tax credits and cost sharing subsidies. This would help make coverage more attractive for younger and healthier enrollees. The individual market would be strengthened.   

Democrats should accept state responsibility for finding alternatives to the individual mandate—or allow it to be enforced by states, as Massachusetts did before the ACA. Repealing the individual mandate at the federal level would allow Republicans to claim credit for repealing a divisive part of the law, and free up states to experiment with other options.

Finally, Congress should allow states to tap all available sources of federal health care funding when calculating the effect on the deficit. Block grants that included Medicaid, ACA, CHIP, and even Medicare spending would allow states to make long term investments in better health by investing in prisoner reentry programs and housing assistance.

Both parties have concerns. Democrats worry state waivers would result in a “race to the bottom” as states abandon consumer protections. Republicans worry innovation waivers will lock in the expensive, heavily regulated status quo. Both of these concerns can be addressed by a healthy dose of transparency for vulnerable populations and accountability for total spending.

No governor or legislature wants to see their health care costs spike, or people die in the streets. Block grants, for the first time, would encourage states to aggressively pursue reforms that promoted competition and lowered costs, and give Congress a tool for revisiting state-by-state spending. 

Congress may not be able to agree on a single solution for America’s complex health care woes. If so, let’s make a virtue of necessity, and let states and governors compete to develop pragmatic solutions. Through innovation waivers, Republicans could claim they allowed all fifty states to repeal Obamacare, and Democrats could claim they saved it for any state that wanted to keep it. 

And they’d both be right.           

Paul Howard is director of health policy, and Yevgeniy Feyman an adjunct fellow, at the Manhattan Institute. They are authors of the new issue brief, “How Congress Should Clarify and Expand the ACA’s State Innovation Waivers.”