Politics & Policy

The Obamacare Bait-and-Switch No One Noticed

The Obama administration is doing its best to discourage states from experimenting with health-care reforms.

By now, most Americans have heard about Obamacare’s premium increases, plans being canceled, and many doctors and hospitals no longer being covered by the new plans on the exchanges. But a recent about-face by the Obama administration on so-called “state innovation waivers” may be the most important change that no one is paying attention to.

In drafting the Affordable Care Act, horses were traded and pork was barreled. But something good did come out of all the politicking — Democratic legislators injected a giant dose of federalism into the law: State innovation waivers, also called 1332 waivers, which will begin in 2017. These allow states to take a block grant of funding and waive nearly every major component of the law. This option comes with a few asterisks, including deficit neutrality. But in theory, red states could turn the law into a Trojan horse for conservative health-care reform, while blue states could pursue their dreams of single-payer utopia.

A major change, however, is now set to make these experiments mostly impossible. In recent guidance, stealthily released at the close of business on a Friday last month, the Department of Health and Human Services announced that the rules are changing: the deficit-neutrality asterisk is now a huge exclamation point. These innovation waivers must still be deficit-neutral, but this neutrality will be evaluated entirely in a vacuum: Savings from Obamacare may not be used to offset increased costs in other parts of a state’s health-care budget.

Common sense dictates that states should be able to combine state innovation waivers with Medicaid waivers to better manage the health-care needs of their citizens. For example, a “private option” Medicaid expansion would likely cost more, but that could be offset with less spending on the Obamacare exchanges, netting out to deficit neutrality.

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Instead, the administration is now telling states that combining funding sources to help those who need assistance the most is verboten. Ultimately, this only hurts the poorest citizens, who would otherwise be beholden to programs such as Medicaid or the byzantine rules governing Obamacare’s exchanges.

The only bright spot is this: Because this HHS directive is only “guidance,” rather than “rulemaking,” it will be easier for a friendlier future administration to change. But otherwise, this is one of the worst unilateral changes to the law that the administration has undertaken.

#share#Consider the situation in Arkansas. Governor Asa Hutchinson has signaled that the state’s “private option” Medicaid expansion, in which Medicaid beneficiaries receive private insurance plans, would hinge on receiving a state innovation waiver — probably because it would require higher Medicaid spending, which would need to be offset with less spending on Obamacare’s exchanges.

Blue states could suffer too. Rhode Island recently authorized the pursuit of an innovation waiver, as did Hawaii. The proposals have yet to be fleshed out, but the inability to share savings across the two programs undoubtedly constrains both states.

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These are just a few examples of states across the country that are eager to make innovative decisions using the flexibility that innovation waivers would have provided. Unfortunately, this latest move by the administration doesn’t bode well for experimentation and policy innovation.

There are a lot of things we should be experimenting with in health care — supportive housing for the homeless and/or mentally ill, replacing traditional Medicaid benefits with direct cash transfers, and incorporating value-based payment instead of fee-for-service into our long-term-care systems, to name just a few.

#related#States are a major stage for ideas and experiments, in health care and other areas, to be tried and tested. Oregon’s Medicaid program attempted to make coverage decisions based on cost-effectiveness measures, for instance, but the public pushback proved that doing so is tougher than many on the left would have us believe. Negative-income-tax experiments in New Jersey and other states highlighted the difficulty of maintaining work incentives in the context of welfare reform. And welfare-to-work reform in New York State helped reduce welfare rolls and bring more women into the labor force.

These experiments have taught us valuable lessons that continue to inform policy debate today. Instead of restricting the ability of states to undertake policy experiments, we should encourage them. Instead of telling states that two health-care funding streams can’t be comingled, states should be free to bundle even more funding streams into a single block grant to figure out what works best for their citizens.

There’s a chance that a new administration in 2017 will undo this administration’s mistake. But unfortunately, if history is any indication of what’s to come, this “guidance” may remain on the books for good.

— Yevgeniy Feyman is a fellow at the Manhattan Institute.


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