The Waivers Question

by Yuval Levin

The Republican legislative efforts around health care this year have begun to fall into something of a pattern. Call it iterative frantic rushing: An idea emerges, it seems to be going somewhere, and it’s immediately raised up as a way to get everything done instantly. The vote will be Thursday! Then tax reform! When the idea proves unable to resolve all difficulties immediately, everybody holds a funeral. People settle in for a brief interlude of finger-pointing and ritual blaming of the Heritage Foundation (then tax reform!). But then it turns out no one was done talking, and members quickly start building on the progress they made and gearing up to try again. And the cycle repeats. It has happened twice already, and we may now be in the midst of a third round. More may come. 

It’s not an ideal way to make policy. And it could well fail altogether. But over time these spurts of activity might actually add up in total to a meaningful legislative process that achieves a workable set of reforms. The rushed pace has been deadly to comity, but I’d also say some of the progress made this way has been real, and it may well be getting somewhere.

After the first round (when the dual-reconciliation or “repeal and delay” strategy was abandoned), it became clear that Republicans are largely agreed that a replacement for Obamacare must be attached to any repeal—the two can only happen together. That was important progress. After the second round (when the vote on the American Health Care Act was cancelled) it became clear that Freedom Caucus Republicans are primarily focused on rolling back Obamacare’s regulatory takeover and Tuesday Group Republicans are primarily focused on making coverage available, especially for people with pre-existing conditions. That was big progress too, and it meant the two groups came far closer to each other than they’d been before. 

The latest round, which has had a slightly lower profile but has been no less intense and quick than the prior ones, has begun to point the way from ends to means. It looks like House Republicans have been trying over the past few days to coalesce around a revised version of the AHCA. One key revision has involved a more assertive temporary federal reinsurance scheme to quickly lower premiums and stabilize the transition period to a new system. But maybe the most significant, and least familiar, new proposal has involved allowing states to obtain waivers from some Title I regulations in Obamacare.  

The devil will be in the details, and they will matter enormously here, but the general concept of returning regulatory power to the states through waivers that are connected to the bill’s spending measures is an interesting way to deal with the constraints Republicans confront and could have real promise. 

The process that yielded the AHCA treated the constraints of reconciliation as a cause for subtraction. That is, it began with a set of ideas that wasn’t designed to be advanced through the reconciliation process in the Senate (where only provisions directly germane to spending and taxes are permitted) but was intended instead as a full repeal and replacement of Obamacare, and then it removed elements from that approach to make for a bill that could be reconcilable. It thus presented itself as the most that could be done because it began with what (some) conservative reformers wanted to do and shaved pieces off of it until it could fit into the only available vehicle for action. The result had serious trouble holding together. 

But that isn’t the only way to think about how to achieve the most that can be done. Another way is to begin from the constraints and the goals and think about how the latter can be most nearly approached given the former. The waiver idea, as I understand it, is a little more like this. It is, in a sense, native to the realities of reconciliation. And it is also more responsive to what the attempt to pass the AHCA revealed about the real priorities of the different factions of the House GOP. 

It now seems that the familiar debates about tax credits vs. deductions and even about spending levels aren’t exactly where the dividing lines are in the House conference. Rather, as I’ve just suggested, the Freedom Caucus Republicans want to maximize the reversal of Obamacare’s federalization of health insurance regulation to give people more options at lower costs and the Tuesday Group Republicans want to maximize genuine access to coverage and care for everyone in the individual market. Both want a more functional, competitive, consumer-oriented health-care system. And it’s not that either group simply doesn’t care about the other’s primary emphasis, but they do seem to enter the debate with these differences of emphasis and priority. The challenge, therefore, is to maximize both at the same time. 

This is good news, because both of those are crucial goals and they can actually reinforce one another. But how do you maximize both and do it within the constraints of the reconciliation process? I think the waiver idea is an attempt to answer that question. In effect, it says to each state government that, if it can show that Obamacare’s regulations make it too hard for its residents to have a functional individual insurance market and can demonstrate how a different regulatory architecture would better enable it to make use of whatever federal support the legislation would offer and provide more people with access to coverage and care, then it can have that different regulatory architecture. How this might be achievable will vary from state to state, and a waiver approach can make room for such variance. It will also look different to state officials with different assumptions about health economics, which this approach could allow for as well. 

How does this respond to the constraints of reconciliation? As I understand the idea, waivers would be tied either to the state stabilization fund envisioned in the AHCA or to the credits provided to help people afford coverage, and a state would have to show that its alternative regulatory structure would enable its residents to make better use of the benefit—and so in effect would increase uptake and therefore directly affect federal spending. It’s plausible, though not certain, that this could clear the bar for reconciliation. 

And how does it respond to the political constraints House Republicans face? It essentially says that states will need to propose modes of regulatory reform that will improve the individual market. So it tells states they will be given what the Freedom Caucus wants to give them only if they can show that they would use it to achieve what the Tuesday Group wants to achieve. And states would have a strong incentive to make such proposals and apply for waivers, because the existing regulatory infrastructure of Obamacare isn’t working well for many and the AHCA without waivers wouldn’t either. 

Now that’s all very general. But the details will make all the difference. For instance, will states be able only to apply for pure waivers (that is, for relief from certain rules while the others remain) or also to propose alternative regulatory frameworks? What if a Republican state wants to replace Obamacare’s community rating with a form of community rating available only to people who are continuously insured? Presumably a waiver would leave it free to do that. Or what if a Democratic state wants to impose its own individual mandate to make up for the elimination of the mandate in the AHCA? Or what if either of those states wants to permit catastrophic coverage plans to be sold and then require every insurer in the individual market to offer at least one “default” catastrophic plan with a premium equal to the federal credit so that everyone can have at least minimal coverage and no one remains uninsured? 

A real federalist solution would allow for any of that, and much more, as long as the state can show that it would improve its residents’ ability to use the federal resources available to them. It would effectively take us back to a system of state-regulated health insurance but with federal help to enable people to enter the individual market as consumers and with states required (by means of their choice) to enable their residents to use that help in ways that improve access and protect people with pre-existing conditions. It’s a potentially powerful way to repeal and replace significantly more of Obamacare than the original AHCA while also putting significantly more downward pressure on premium costs and enabling better coverage levels—within the constraints of the reconciliation process.  

But those constraints also point to other details that will matter. What are the waivers that Republicans are thinking about going to apply to? All of Title I of Obamacare, or just community rating or essential health benefits? Maybe something in between? Some forms of that could work, others would have real trouble, since in, Obamacare’s regulatory scheme, community rating and guaranteed issue and actuarial values and the essential health benefits are bound together (as Chris Jacobs well illustrates). And, crucially, what will states have to promise and demonstrate to qualify for a waiver? In return for what commitments—about coverage or protection for people with pre-existing conditions, or other things—will they be granted relief?

A lack of clarity, and of time for discussion, regarding all that seems to have contributed to some trouble this week, and it remains to be seen if anything will come together before members leave for the Easter recess. Something after the recess certainly seems more likely. And more time would be useful for more members to get familiar with these ideas and see what they think of them. 

Some moderate Republicans have taken the waiver approach to be about simply eliminating community rating or ending protections for people with pre-existing conditions. But the members championing the waiver approach seem instead to have in mind allowing states to achieve that goal by other means than Obamacare’s particularly onerous form of community rating and its mandates—and requiring states to show that this would be their goal before they could get a waiver to do it. That hasn’t been clear to many Republicans, and exactly how to do it isn’t really clear to anyone. 

Crucial matters like that have so far remained unresolved, and will have to be worked out if this approach is to get anywhere. It may well be that some of it doesn’t get fully resolved in the House but a bill that introduces the waiver idea nonetheless makes it out to the Senate sometime soon, where it might be further worked out. The introduction of this concept seems like a good development, and it may point the way toward further ideas that are also, in a sense, native to the constraints of reconciliation. 

A waiver approach, for instance, might be best attached (and not just temporarily) to a credit approach like the one proposed as a transitional measure in Section 202 of the AHCA—as Avik Roy has persuasively argued. Or it might best be attached to a further step toward health-care federalism, like a block grant to the states instead of a credit to individuals, to enable states to decide how best to help their residents afford coverage in the individual market and then let them propose the regulatory framework that would best help their preferred approach succeed. These sorts of steps are likely too much for the House to contemplate at this point, but if this process does proceed they could be worth the time of the Senate or of the House in a later round. 

But that is to get well ahead of where we are, and perhaps of where this will ever go. Right now, the question before House Republicans would need to be settled by whether the details of the proposal that’s coming together (if it comes together at all) will merit their sending it forward for another round of legislating in the Senate. 

A key appeal of the approach is its recognition of constraints. This is not a wholesale repeal and replacement of Obamacare, since reconciliation and the contemporary political environment will not allow for that. And it’s starting to look less like a bill that began as a wholesale repeal and then shed its limbs until it could fit through a narrow passageway. That wouldn’t be a means to a coherent policy. It would be better to begin by recognizing the limits of this situation and pursuing the goal of a more functional, competitive, consumer-driven insurance market in light of that recognition from the start. 

Waivers might well be one way to do that. But an approach that recognizes these constraints would need more. It would need also, for instance, to acknowledge the importance of a stable transition, and to make sure that it always errs on the side of more cushioning and protection for more vulnerable people. If this is a first major step in such a direction, as it very well may be, that would be a good thing. We shall see.

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