Buried deep in the 142 pages of the Senate’s new health care bill is an immense reform that could pave the way for a new rollback of parts of the Affordable Care Act—one that takes place state by state, rather than in Washington. Although the bill preserves most of the consumer protections written into the 2010 law, it also contains a provision that allows states effectively to waive many of them, and gives them a financial incentive to do so.
The bill dramatically expands a policy built into Obamacare that lets states apply for waivers to loosen the law’s insurance requirements. And although it will likely receive less attention than the bill’s Medicaid reforms or tax cuts, the new bill loosens the waiver rules in way that could completely reshape the individual insurance market, allowing states to drop almost every major Obamacare insurance regulation as long as it doesn’t increase the federal deficit—with almost zero oversight from the federal government. Everything from the requirement that insurers cover maternity care to protections for people with pre-existing conditions could be at stake.
Supporters of Obamacare say its consumer protections are critical to ensuring that everyone has access to affordable insurance that meets basic coverage requirements; the expanded waivers, they say, could leave the old and sick with insurance so flimsy as to be essentially useless. Supporters of the new bill say those fears are overblown, and that loosening the requirements is key to states’ attempts to lower rates and stabilize insurance markets.
The waivers are technically known as “Section 1332 waivers,” for the section of the Affordable Care Act that allowed states to request exemptions from a long list of ACA rules. These include the requirement that individuals buy insurance; the tax credits to help buy insurance on state exchanges; the “essential health benefits” that insurers must cover; and limits on how much consumers must pay out-of-pocket each year. The waiver program was intended to let states experiment with different designs of their insurance markets—changing the structure of the subsidies, or requiring insurers to cover different benefits—within the basic parameters of the law.
But Section 1332 wasn’t originally designed as a loophole for states to ignore the law’s regulations. Instead, the law contained four so-called “guardrails” to ensure every American had access to quality insurance. A waiver proposal had to provide coverage as comprehensive as that under the ACA; provide protection against out-of-pocket costs as under the ACA; cover a comparable number of people as the ACA; and not increase the federal deficit.
“Those four guardrails in essence replicate the ACA,” said Chris Condelucci, former GOP staffer and ACA expert. “It’s almost like the exception is swallowing the rule, and states have come to learn that as well.”
To request a waiver, a state legislature actually needs to pass a law, and is required go through an open process with a notice and comment period. The actuary at the Centers for Medicare and Medicaid Services must certify that a state meets the coverage requirements of Obamacare, and the secretary of Health and Human Services must then approve the waiver—but is under no obligation to do so. In other words, receiving a Section 1332 waiver is hard, and is designed to be hard. The waivers became available only in January, and so far just Hawaii has received one.
The Senate GOP bill released on Thursday would make the process far easier. Rather than pass a law, a governor and state insurance commissioner can simply request it. And it would eliminate three of the four guardrails. The secretary of the Department of Health and Human Services would have to certify that the waiver proposal met only one criteria: that it wouldn’t increase the federal deficit. State plans still must “provide for alternative means of, and requirements for, increasing access to comprehensive coverage, reducing average premiums and increasing enrollment.” But states just need to assert that their plans meet those goals. Nobody needs to prove they do so. In fact, it explicitly directs the HHS secretary to approve a state waiver proposal unless it increases the federal deficit. There’s even a $2 billion pot of money to encourage states to submit a waiver proposal, although the bill doesn’t say how it would be dished out.
The whole structure shifts power from state houses to the governors’ mansions across the country, so that GOP governors in blue states could redesign their individual insurance markets without their legislature’s approval. And that design can last for eight years—unless the state requests a shorter duration. The HHS secretary explicitly cannot terminate the waiver during the eight-year period.
What does this all mean? A key principle of Obamacare is the idea that all insurance meet some kind of minimum standards. Under the Senate bill, states could design their own health insurance markets with almost no minimum standards—if they so chose. A state could plus up subsidies for older Americans at the expense of the young, or allow insurers to sell plans that don’t contain coverage for maternity care or prescription drugs. They could also entirely eliminate the exchanges where consumers compare insurance plans, an important design choice that conservatives argue would make it easier to shop for insurance.
They could even undermine protections for people with pre-existing conditions. Section 1332 waivers don’t technically allow states to alter those protections, but states could allow insurers to sell plans that don’t cover certain conditions—or that contain sky-high limits on out-of-pocket expenses. People with pre-existing conditions may technically be offered insurance with affordable premiums, but the insurance could cover so little of their needs as to be effectively useless.
So what’s the point of the waivers? Republicans have argued that the Obamacare requirements are too stiff, forcing insurers to cover an expansive array of benefits that keep premiums high. Enabling states to allow slimmed-down packages of benefits would likely lower those premiums. That could bring more young and healthy people into the market, providing some stability. They argue that the worst-case scenarios envisioned by Democrats won’t come to pass–that states won’t simply eliminate all consumer regulations and leave their constituents with useless insurance.
“There’s a lot resistance to doing that at the state level, just as there is at the national level,” said James Capretta, a health care expert at the American Enterprise Institute, about rolling back consumer protections. “I’m skeptical that there will be wholesale movement away and states would do completely irresponsible things.”
Democrats respond that it leaves too much power in the hands of states, and that original waiver program appropriately balances state flexibility with minimum national insurance standards. The expanded waivers in the GOP bill, they warn, could leave many Americans with coverage-in-name-only—a cancer patient who cannot find insurance that covers radiation treatment or a pregnant woman without maternity coverage.
Even if the Senate bill ultimately becomes law, it’s not clear that the expanded waiver authority will survive a parliamentary challenge in the Senate. To avoid a filibuster, Congress plans to pass this bill under the reconciliation procedure—but that means all legislative changes must be directly related to taxes or spending. As of now, lawyers aren’t sure if the waiver reforms qualify.
Nevertheless, expect to hear much more about 1332 waivers in the months ahead. HHS Secretary Tom Price has some flexibility under the current law to grant states waivers. Just last week, Iowa announced that it intended to submit a waiver proposal to stabilize its insurance markets, including major changes like restructuring Obamacare’s subsidies so that they are based on age and income and not adjusted for geography. The road ahead for approving such changes remains long and unknown.
But for an administration that hates Obamacare, 1332 waivers offer its best chance to reform the individual insurance market without congressional action. Expect Price and Co. to use it.