The GOP's New Obamacare Repeal Deal Would Give States More Choice—But Only With Federal Permission

A tentative deal would provide some regulatory wiggle room, but would preserve key elements of Obamacare.


Jeff Malet Photography/Newscom

After a months-long standoff, conservative and moderate GOP factions may be nearing an agreement on measure to partially repeal and replace Obamacare.

The apparent deal, which still may not have enough support to push through the House, is likely to be portrayed by supporters as a compromise that allows states to decide on their own approach to health policy. But the terms make it look less a negotiated compromise than an agreement to let individual states work out the differences between the two groups via a waiver process that is managed by the federal government.

The core idea of the agreement, as reported by The Huffington Post, is to allow states to opt out of two key provisions in Obamacare: the Essential Health Benefits (EHB) rules, which require insurers to offer certain categories of coverage with all plans, and some of the community rating rules, which restrict how insurers can charge based on individual health history. Insurers would still be prohibited from pricing based on gender, and would only be allowed to charge based on health history in states that established high-risk pools.

But states would not be simply allowed to choose for themselves whether or not to opt out. Instead, they would have to apply for approval from the government, which would have to grant a "Limited Waiver." States would be required to show, or at least claim, that their waivers would allow them to reduce insurance premiums, increase coverage, or "advance another benefit to the public interest in the state," according to a summary of the agreement posted by Politico.

States, in other words, would have to rely on the waiver process set up by federal government in order to opt-out. Which means that the permissiveness and flexibility of that process is an important factor.

State waivers for health care policy are not a new idea—and in many cases, the process has been rather onerous for states. Obamacare, for example, included a provision allowing states to apply to opt out of certain requirements through Section 1332 of the law. But 1332 waivers are a heavy lift for states, requiring lengthy public comment periods and review by federal health officials, as well as certification that coverage will remain both as widespread and as generous as under Obamacare. It also limits which provisions the federal government can waive. It sets a regulatory floor that basically leaves states with the option to pursue something like a single-payer system, as in Vermont.

The federal government also grants waivers to states seeking to alter their Medicaid programs. But as Jonathan Ingram, Nic Horton, and Josh Archambault wrote last year in Health Affairs, "States frequently comment on the frustrating, time consuming, and seemingly 'corrupt and opaque' process of the Medicaid Section 1115 waiver route." Those waivers take nearly a year on average to process. The authors also suggested that Obamacare's 1332 waiver process, which the law timed to start in 2017, could be even more onerous.

So while waivers have traditionally offered states more flexibility than they would have had if no process existed at all, they have tended to rely heavily on negotiation with the federal government. State choice is dependent on the whims of the administration.

The Trump administration has signalled that it is open to state waiver requests. Seema Verma, who was recently selected to head of the Centers for Medicare and Medicaid Services (CMS), which approves the waivers, negotiated a waiver to expanded Medicaid through Obamacare in Indiana, under then-governor Mike Pence. Last month, Verma sent a letter to states asking them to put in waiver requests. The House GOP agreement would probably make the waiver process easier for states—in particular by allowing the administration to waive Obamacare's essential health benefits and community rating rules.

But the administration would still be charged with granting or denying waivers. And a future administration that is less open to state flexibility might not be quite so inclined to play along with states. (This sort of legislation almost always leaves room for creative interpretation by the executive branch.) And it would do so in a bill that still awkwardly preserves many of the essential features of Obamacare at the federal level, from key insurance regulations to a more limited form of tax subsidy. At best, this would merely tweak the House GOP's original bill, with all its previous problems, to offer a bit of wiggle room to states that managed to obtain permission from the federal government.