State Governments

House-Passed Health Care Bill Gives States Escape Hatches From Obamacare Mandates; They Might Never Get to Use Them

For reasons practical and political, the waivers included in the AHCA to earn Freedom Caucus support might be mostly useless.


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The American Health Care Act, which cleared the U.S. House with a 217-213 vote on Thursday afternoon, promises to let states opt out of some of Obamacare's insurance mandates. The goal is to decrease premiums and keep healthy from leaving the individual market.

That sounds great, but the most important of those waivers—including one that would allow states to opt-out of the "essential health benefits" requirements of Obamacare, which required all insurance plans to cover certain medical treatments and made many lower premium options illegal—is unlikely to have any impact until 2019, at the earliest. And there is little evidence, so far, that states will actually choose to take that option. Doing so would be as much of a political decision as a policy one, much like how many Republican states opted out of Obamacare's Medicaid expansion while other states accepted it.

The essential health benefits waiver was added to the AHCA after the bill failed to clear the House in March over objections from the conservative/libertarian House Freedom Caucus. On that front, as a political deal to get the bill over the finish line, it seems to have worked. The Freedom Caucus supported the AHCA on Thursday.

(Read Peter Suderman's analysis of the policy ideas in the AHCA here. Read Matt Welch on the Freedom Caucus' reversal here)

The essential health benefit waivers could give states more flexibility to offer a wider range of plans on the Obamacare exchanges, or whatever eventually replaces them, and could lower premiums by allowing insurance providers to offer plans current deemed "sub-par." It's also part of a broader signal that the Trump administration is willing to let states make their own decisions on other health care policies, says Naomi Lopez-Bauman, director of health care policy at the Arizona-based Goldwater Institute, a free market think tank.

"I think you're going to see a flurry of state activity," she says. "There is a need to address the unique health care needs of people that varies because of geographic and economic and cultural differences. You can't do that perfectly at the state level, but you absolutely can't do that from Washington."

Indeed, the inclusion of the essential health benefits waiver (and another waiver, which will allow states to price health care plans differently based on individuals' age and health status starting in 2020) inspired a fair bit of optimism from state-level policy analysts surveyed by Reason as the AHCA passed on Thursday.

"We welcome the waivers," said Jameson Taylor, vice president for policy at the Mississippi Center for Public Policy, another free market think tank, "with the knowledge that neither Congress nor the president is going to drain the health care swamp. Each state must take responsibility for the work themselves."

Getting there, Taylor admits, will be an "uphill battle" for state lawmakers. Elizabeth Stelle, director of policy analysts at the Pennsylvania-based Commonwealth Foundation, offered a similarly mixed opinion. States should take advantage of the waivers as much as possible, because "the past seven years have shown us no one in Congress is qualified to make health care decisions for Pennsylvanians," she said.

But will they? Pennsylvania offers a prime example of how the fight will break down along political lines. The state's Democratic governor, Tom Wolf, sent a letter this week to Pennsylvania's congressional delegation urging a vote against the AHCA. After its passage in the House, Wolf's spokesman told me that the governor does not support "rolling back consumer protections, including those that protect Pennsylvanians with pre-existing or chronic conditions."

It's also not clear how states would apply for the waivers. Likely, that would fall to executive branch officials, though state legislatures could pass laws ordering those officials to seek a waiver or preventing them from doing so. In places like Pennsylvania, where one party controls the governorship while another has control of the legislature, it will be an ugly political fight. So far, I've been unable to find any state where a governor has promised to seek the essential health benefits waiver (and, to my knowledge, there are no reports in the media of governors promising to apply).

Michael Cannon, director of health policy for the Cato Institute, says there are several reasons to believe the waivers will never be implemented in many places—and might not do much good even in the places where they are adopted.

"The waivers don't help at all," he says. "All they do is make coverage worse for sick people and generate bad press for Republicans and for free market health ideas."

For political reasons, many states may not pursue waivers at all for political reasons, and those that do will be attacked for stripping away protections that ensure higher quality care, all for limited gains in reducing premiums. In the end, Cannon worries, the result will be "higher premiums, worse coverage, and maybe even more parts of the country with few health insurance options," he said Thursday.

One additional, complicating matter. Gaming out how the AHCA progresses from here necessarily assumes many things—most obviously that this bill will clear the U.S. Senate and an eventual conference committee—of which it is right to be skeptical. In talking about the waivers, it becomes necessary to assume even more things. Since the waivers for health care status will not be granted until after the 2018 elections, for example, it's impossible to know whether or not they will be eliminated or changed by a post-election Congress, possibly one that is under Democratic control. Sure, Republicans have a favorable map in the Senate in 2018 and favorable maps in the House (thanks to redistricting) until 2020, but the initial reaction to Thursday's vote is that Republicans will have a hard time selling this bill to the American people before the mid-terms.

"You have every element of this bill tattooed on your forehead," Minority Leader Nancy Pelosi (D-California) said on the House floor before the vote Thursday. She knows of what she speaks, since she was on the receiving end of an electoral "shellacking" in the wake of Obamacare's passage in 2010. Some observers on the right, including Avik Roy, a health care policy analyst for Forbes Magazine, agree that the AHCA could be electoral sabotage for Republicans.

The electoral consequences matter, and not just for determining who gets to run the show in Congress. A new congressional majority could change the rules for the AHCA's waivers before they take effect, and a future Democratic president could appoint an HHS secretary unwilling to grant those waivers after 2020.

If the Senate doesn't make changes to the bill, the resulting policy will "threaten GOP majorities in Congress" and "damage the credibility of free market health reform for a generation," writes Roy.

Added flexibility for states to seek their own solutions to health care problems could give states more options to experiment with local policy solutions. If they never get to use that flexibility—either because the Senate kills those aspects of the bill or because the political fallout of the AHCA means those escape hatches get sealed shut before they can be fully opened—then we end up right back where we started.