Politics & Policy

Reform Obamacare by Returning Power and Money to the States


Conservatives’ fundamental insight on entitlement reform has been that one-size-fits-all government programs enrich bureaucrats and special interests without reducing poverty. The latest Obamacare court battle, King v. Burwell, a win for the administration, has not eliminated the possibility for positive health-care reform.

ACA opponents should take a page from the history of conservative success in reforming anti-poverty programs. The key analogy is welfare reform, where state-based experimentation, without immediate loss of benefits, ultimately drove an end to welfare as we knew it. The same can happen with health care.

Republicans must lay the groundwork for a thorough reform of the ACA that stays true to their federalist roots, embracing state experimentation and delivering on their “replace” promises.

A little-known Obamacare provision may help. State innovation waivers (“1332 waivers”) offer states the opportunity to take the lead in crafting their own health-care solutions. States are allowed to waive many of the ACA’s mandates, taking a block grant of funding in return (with restrictions that include federal-deficit neutrality).

Reforms could potentially include tying work-search requirements to Medicaid eligibility (though rebuffed by the administration, a combined Medicaid and 1332 waiver could make this idea more appealing) and linking baseline-exchange coverage to high-deductible plans and health-savings accounts. Blue states might opt for the Obamacare status quo or embrace single-payer solutions.

Conservative reformers should not balk at such an outcome. That’s the brilliance of federalism.

A massive overhaul of the welfare state, based on the principles of federal flexibility and state accountability, should be attractive to governors on both sides of the aisle. More state experiments would offer more evidence of what really improve the lives of the poor — rather than simply funnel more subsidies to the poverty-industrial complex. The way forward is relatively simple, as the Hoover Institution’s Lanhee Chen has explained.

First, push up waivers from 2017 to 2015 to allow states to get an early start on reform. Second, expand waivers. Many elements of Obamacare can be waived, but not all. For instance, states should be permitted to allow employers the option of keeping the current tax exclusion or offer workers a pre-tax contribution to shop on public or private health-insurance exchanges. This approach would be particularly appealing to small businesses but has been declared verboten by the IRS because of the ACA’s employer-market reforms (not included in 1332-waiver authority).

Dealing with the ACA should only be the beginning. All means-tested programs should be eligible for block granting (an approach Jim Manzi advocates in Uncontrolled). This approach, similar to Paul Ryan’s “opportunity grants,” would bundle federal funding for low-income households into one all-purpose block grant. The idea: let states experiment on more-targeted ways to spend money on residents — with appropriate safeguards for vulnerable populations and strict reporting and testing requirements.

A state-based reform strategy can appeal to conservatives, moderates, and even liberals who recognize that simply handing out an insurance card is not a ticket to better health or a better economic future.

There are good reasons to go beyond Obamacare. In a startling indictment of the American welfare state, economists at MIT, Harvard, and Dartmouth found that Medicaid’s value to beneficiaries is 20 to 40 cents for each dollar spent. If Medicaid recipients had more control over those dollars, they’d buy something else. Indeed, in the past 50 years, medical care is estimated to have contributed to only 50 percent of observed longevity gains, implying that health-care dollars could be better used to improve outcomes for the poor.

History offers other important lessons. Temporary Assistance for Needy Families (TANF), widely considered the most successful policy reform of the past 20 years, was a block grant that led to lasting reforms, reducing child poverty and moving millions into the workforce. The reform hinged on allowing states to experiment without immediate, precipitous change but rather with new rules that signaled long-term change. The overall effect was transformational.

Embracing the same principle for health care would empower governors and state legislators to consider innovative approaches to delivering health insurance (and other means-tested benefits) in ways that deliver better value to taxpayers.

A state-based reform strategy can appeal to conservatives, moderates, and even liberals who recognize that simply handing out an insurance card to low-income Americans is not a ticket to better health or a better economic future. Mega–block grants could include Medicaid funding, exchange subsidies, and housing and education vouchers as well as multiple other streams of federal funding that are currently poorly supervised, ineffective, and duplicative.

Providing other social services, such as supportive housing for the mentally ill and job training and placement programs for ex-prisoners, would likely have positive effects on the long-term health and economic prospects of our most vulnerable citizens. The only constraints should be a need for transparency, tracking outcomes (including employment and hospital-readmission rates), and deficit neutrality.

Republican reformers need to enunciate a clear principle for broad-based health-care and social-safety-net reforms that ordinary citizens can understand and appreciate. Rather than simply rail against Obamacare’s failings, reformers should focus on changing the conversation toward the cost and ineffectiveness of government services for the most needy.

Return power and money to the states: It’s good politics, and good policy.


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