Health Care

Can States Repair Obamacare’s Damage?

Washington broke insurance markets. It should let states try to fix them.

Having failed to repeal the Affordable Care Act, congressional Republicans now want to create a new corporate welfare program to save it.

Here’s a better idea: Congress and the administration should give states more latitude to clean up the mess — at no additional cost to the federal government.

That is a central recommendation of a new Mercatus Center study that we co-authored. Our study examined congressional and federal proposals that surfaced throughout last year in the broader context of the star-crossed “repeal and replace” debate.

The most promising ideas to repair broken insurance markets emanated not from Washington, but from the states.

That should surprise no one. States have traditionally been the primary regulators of health insurance, as they are for other forms of insurance. Obamacare rests on the hubris that federal bureaucrats could regulate health-insurance markets better than could states.

Federal intervention has proven a mixed blessing or a mixed curse, depending on your point of view. Insurance coverage is more accessible to those with chronic medical conditions who don’t have employer-sponsored insurance and don’t qualify for Medicare or Medicaid. More low-income people have insurance today than in 2013. If you spend $1.8 trillion on Medicaid expansions and subsidies, you’re bound to help some.

But others are hurting. Premiums for non-group coverage more than doubled between 2013 (the year before Obamacare took effect) and 2017 and increased by another 37 percent this year. Consumers, like many insurers, have responded by abandoning those markets. The individual market began to shrink in 2016, a contraction that appears to have accelerated last year.

Yet the green shoots of state innovation continue to sprout from Obamacare’s ruins. The question is whether Washington will nurture or uproot them.

Our study chronicles how federal legislative efforts to repeal Obamacare gradually evolved to allow more state control over how federal resources would be directed and more latitude to deviate from the law’s stultifying regulatory regime.

At the same time, the Trump administration encouraged states to take full advantage of an obscure provision of the Obamacare statute that permits the Centers for Medicare and Medicaid Services to grant waivers to states to sidestep some of the law’s most onerous requirements.

States responded aggressively to the administration’s overtures. A number of proposals emerged, each of which set forth cutting-edge ways to make health insurance more affordable, especially to those who don’t qualify for federal subsidies.

Most importantly, states had to show that their waivers wouldn’t result in additional federal spending. Instead, their programs had to allocate federal dollars more efficiently, reducing premiums and, as a consequence, federal premium-assistance subsidies, holding the federal government harmless.

Alaska, unlike other states, won federal approval for its “reinsurance” waiver. They finance it partially with state funds and partially with federal money that would otherwise have been paid directly to insurers on behalf of low-income enrollees. The results are promising. Premiums for the lowest-priced Bronze plan in the state fell by 25 percent in 2018. In other states, premiums for such plans rose by a median of 16.4 percent.

Congressional Republicans are learning the wrong lessons from Alaska. The insurance lobby has convinced GOP lawmakers that state reinsurance programs would work even better if they weren’t budget-neutral to the federal government. The more the feds spend, lobbyists argue, the more consumers will save.

Our study suggests that giving states more control over their markets (rather than more money for insurance companies) is the far better path. Allowing them more latitude to deviate from the ACA’s stringent structure can help make insurance more affordable, while still protecting consumers.

Giving states more control over their markets is the better path.

Unfortunately, many states are feeling burned. The Trump administration invited them to innovate, then declined to approve many of their innovative proposals. The administration should restore that trust by rescinding Obama-era guidelines that impose counterproductive limitations on waivers and taking additional steps to streamline the waiver approval process.

Congress also should consider building on a legislative proposal by Lindsey Graham (R., S.C.) and Bill Cassidy (R., La.) that would empower states to implement consumer-centered health-care reform. The Graham-Cassidy measure would provide federal resources to states instead of to insurance companies and task states with designing programs to make individual health insurance affordable to their residents, regardless of their income or medical condition.

At the very least, Congress should refrain from spending additional federal money on reinsurance arrangements that states can implement in a budget-neutral way. Like the administration, it should instead work to make the Obamacare waiver process more friendly to states.

Waivers give states authority to do what Congress has failed to do: calm the market turbulence that Congress itself created with Obamacare’s enactment. Congress and the administration should facilitate the use of that authority.

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