A new administration could take its own shot at federal reform. If that does not happen, however, or if the attempt fails, state experimentation is likely to receive renewed attention in 2017 and beyond. Indeed, the newly-adopted Democratic platform places added emphasis on supporting state innovations.
For 1332 waivers to be a game changer, the next administration would need to encourage state engagement by providing more leeway for broad innovations, starting with revisions to the 2015 guardrail guidance. Notably, that guidance was “sub-regulatory” and can easily be revised.
The many progressive and conservative “corrections” to various ACA provisions discussed since the law passed suggest a robust spectrum of possible waiver ideas. Ultimately, state innovations will depend on how the guardrails are interpreted as well as on political considerations.
Changing Benefits and Subsidies. The ACA seeks to make coverage affordable through a combination of low premium/high cost sharing plans and a sliding scale of subsidies that minimize both premium contributions and cost sharing obligations for low-income consumers. Critics on both ends of the political spectrum question whether the law strikes the right balance. In Minnesota, for example, Democratic officials concerned that cost sharing levels are too high for low-income individuals advocate restoring MinnesotaCare, a pre-ACA program that offered low premiums and low cost sharing for enrollees with incomes up to 275 percent of the federal poverty level. Some Republican leaders, on the other hand, want the state Marketplace to offer higher deductible plans to reduce premiums for people who are young, healthy and/or ineligible for premium subsidies due to higher incomes. Both approaches address real needs, but have very different impacts.
Similarly, many states would like to smooth the continuum between Medicaid and Marketplace coverage – but drive toward that goal in quite different ways. Conservative states such as Indiana, for example, have sought to increase Medicaid cost sharing to Marketplace levels, while liberal states such as New York want to decrease Marketplace cost sharing to Medicaid levels. Waivers that increase cost sharing must be scrupulously attentive to affordability, while those seeking lower cost sharing will face the challenge of maintaining deficit neutrality. In addition, the 38 states relying on the federal Marketplace platform would face new operational challenges in adopting a customized subsidy structure.4
Redoing the Exchanges. States have been weighing a wide range of alternative approaches to the ACA’s exchange Marketplaces – from privatizing them to expanding their leverage. Waivers to reform the role of public exchanges must be mindful of how such changes affect access across different populations.
On the privatization side, Oregon recently rejected bids from three commercial vendors to transition from Healthcare.gov to a privatized eligibility and enrollment service.5 Idaho offers a different model for minimizing dependence on the federal government by using Medicaid to determine eligibility for both Medicaid and Marketplace subsidies and then contracting with a commercial vendor to enroll consumers in qualified health plans.6 Other states have discussed a bifurcated system in which consumers determined to be eligible for subsidies are given a voucher to purchase coverage from any carrier, broker or other entity authorized to sell ACA-compliant coverage. And the Council for Affordable Health Care recently proposed “Next Generation Exchanges” that would give subsidy-eligible consumers access to at least one private exchange option in every state.7
On the public side, Covered California is using its market leverage to drive delivery system reform by trimming poor performing providers from its Marketplace networks.8 Although Vermont ultimately decided not to make its Marketplace the sole provider of coverage statewide, other states may take incremental steps in this direction by adding state employees or other large purchasing pools to their Marketplaces. Public exchanges could also play a key role in state efforts to build multi-payer alliances for payment reform.
Replacing the Individual Mandate. The individual mandate is the least popular provision in the law, but experts agree that eliminating it would drive healthy people out of the insurance market, reducing coverage and increasing premiums. To avoid violating the coverage and affordability guardrails, states wanting to waive the individual mandate will need another way to keep healthy people in the insurance pool. Options include penalties for late enrollment (similar to Medicare), multiyear waiting periods if open enrollment is missed, or automatic enrollment. These approaches require customized enrollment functions and will be more challenging for states relying on Healthcare.gov.
Repealing the Employer Mandate. In contrast, the employer mandate could be eliminated without a significant impact on the scope or cost of coverage,9 but this step would raise the federal deficit by reducing the penalty revenue from large employers. States would need to have other features in their 1332 waiver to offset this lost revenue or cut federal costs elsewhere. One option is a “play or pay” requirement for employers to pay a flat percentage of their payroll in benefits or taxes.
As the dust eventually settles from the 2016 elections, both parties may find it attractive to unleash health reform at the state level. Section 1332 innovation waivers could be just the ticket, and relaxed guardrail guidance could encourage some states to take up bolder reforms. However, it is also possible that most states will opt to continue the status quo or pursue only narrow changes, if only because the ACA’s success in expanding coverage is raising the political price that could be paid for disrupting health coverage.