Federalism For Me, But Not For Thee?

Have Senators Scott Brown and Ron Wyden found a federalist solution to reforming ObamaCare? Politico reports on their new proposal to modify the law in order to give states more flexibility: 

Sens. Scott Brown (R-Mass.) and Ron Wyden (D-Ore.) will introduce legislation Thursday allowing states to opt out of the controversial individual-mandate requirement of the health care reform law far sooner than they would under the law passed by Democrats earlier this year.

"States shouldn't be forced by the federal government to adopt a one-size-fits all health care plan. Each state's health care needs are different," Brown says in a statement accompanying the legislation. "Our bill provides flexibility, and allows states like Massachusetts to opt out of portions of the health care law."

The bill is a significant step on both sides of the aisle. It's an effort by a Senate Democrat to ease one of the law's requirements. And it's the first Republican-sponsored effort to modify—rather than repeal—a provision in the law.

I'm not sure this is a bad idea, exactly, but it's less than revolutionary, and it's hardly the happy federalist compromise that supporters seem to want to claim. As modifications go, it's relatively minor: The proposed text doesn't actually add any new options for states; instead, it backs up the date at which they can exercise some options that already existed in the legislation from 2017 to 2014. Now, that could prevent some implementation mess. States interested in opting out of the mandate would not be stuck building a mandate-driven system that they intended to operate for just three years.

But the supposed flexibility the opt-out provision gives the states to innovate is fairly limited. Theoretically, they can get out of the mandate. But to do so, they have to submit a proposal that is judged to cover the same number of people, for the same cost (or less), with the same benefit and coverage levels as mandated in the law. That will make it easier for states—like Sen. Bernie Sanders' home state of Vermont—to experiment with, say, single payer at the state level. But the high bar for coverage set by ObamaCare means that proposals that would rely on higher levels of cost-sharing, on increased use of catastrophic insurance, on allowing consumers to choose what benefits they actually want to pay for are less likely to pass muster.

I'm not even entirely sure how states will get out of the mandate. If, as is my preliminary understanding, they are required to keep some form of guaranteed issue and community rating—insurance regulations requiring insurers to sell to all comers and prohibiting discrimination based on preexisting conditions—then patients will have even less incentive to purchase insurance. 

States that have had those regulations on the books without a mandate have seen their individual markets shrink dramatically. From an individual perspective, it's a totally logical decision: Why pay for insurance when you can get it any time, and without being charged significantly more for existing health factors?

If states attempting to opt out this way are forced to maintain the law's insurance regulations, it will be difficult to ensure that the coverage numbers remain high enough to meet the opt-out test. 

This is why I've been critical of Republican suggestions that we only repeal the mandate (which is widely disliked) and not the insurance regulations (which are widely liked). The same potential problems apply here. 

So perhaps this bill would avoid requiring a few states to go through the motions of set up compliant systems they intended to dismantle a few years later. But the most significant effect of the change will probably be to allow liberal states like Vermont or California to pursue something like single payer, or a government-run insurance option, even earlier, while continuing to restrict the choices of states that might like to pursue more consumer-driven systems. It's added flexibility, sure, but it really only bends one way. The result is a sort of federalism for me, but not for thee.