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How to Expand Healthcare Choice for Consumers

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How to Expand Healthcare Choice for Consumers

September 12, 2017

More details are available in the recently published Manhattan Institute Issue Brief, "How Congress Should Clarify and Expand the ACA's State Innovation Waivers," available here.

States are just beginning to seriously explore the potential of receiving waivers from provisions of the Affordable Care Act to approve more flexible insurance policies than Obamacare allows. These waivers are known as Section 1332 waivers, after the Section in the Affordable Care Act that permits them to be granted.

The limited engagement to date reflects both the highly partisan nature of the debate around the ACA and uncertainty about the future and scope of funding sources that currently flow through the ACA exchanges. Congress and the Trump Administration would be wise to address both issues simultaneously. 

Congress could enact waiver legislation that clarifies the availability of federal subsidies for the purposes of evaluating waivers’ deficit neutrality, including all potential federal spending that could be offset by a waiver, and evaluates its effects over a long (8-10 year) time period after an initial pilot program. Federal “guardrails” to prevent unintended consequences on patient outcomes and the deficit should focus on collecting data on the costs and effects on low-income populations, while expanding consumer choice around affordable, high quality plan options. 

Congress should also instruct HHS to create a set of standardized, expedited waivers that could be quickly approved, to enhance confidence in the process.

Any waiver-based reform will have to be financially attractive to the states and demonstrate long term budget neutrality to gain support of both governors and fiscal conservatives in Congress.

As far as budget neutrality is concerned, the only relevant number to the federal government should be the bottom line. Combined Medicaid and Affordable Care Act waivers that keep total federal spending flat, but redistribute that spending around different populations in a more efficient way, should be promoted rather than prohibited.

With that in mind, multiple funding sources both within and outside of the ACA could be made available,including Advanceable Premium Tax Credits, Cost-Sharing Reduction  subsidies, and small business  tax credits. Other federal funding streams could include Disproportionate Hospital Share  support, safety net federal spending (through federally qualified health clinics, supplemental nutrition and assistance, the Children’s Health Insurance Program, or even federal earned income tax credits), as well as offsets from the reduction in any federal share of Medicare/Medicaid dual eligible spending. 

Potential waiver options for states could include: 

1. Modifying benefit design requirements.  States could offer more attractive coverage to  middle- and low-income groups with low expected costs by choosing to make baseline coverage a high-deductible health plan with a health savings account at a given actuarial value. States could also choose to vary cost-sharing within essential health benefits , based on the ability of patients to shop for services with adequate tools for quality and cost comparison. 

2. Establishing a permanent reinsurance or high-risk pool mechanism.  Because reinsurance would reduce the need for larger federal tax credit, the savings should be passed through to the states. 

3. Enacting an alternative to the individual mandate/penalty.  States should be encouraged to experiment with alternatives that reduce the costs of adverse selection created by healthy individuals staying out of the risk pool. States might modify the penalty to be tied to the cost of the second-lowest-cost silver plan for instance, phase out the tax credit, or even reallocate credits to safety net providers. 

4. Allowing employers to make tax-free contributions to exchange coverage.  In order to incentivize increased use of the non-group market, and help spur a shift away from employer-sponsored coverage, regulations might be waived or altered to allow employers to make defined contributions (up to some limit) pre-tax for the purchase of non-group coverage. This would ensure that individuals would have access to a stable, portable source of insurance.

5. Allowing cost-sharing reduction funding to be used to support private, employer-based coverage. The ACA’s cost-sharing reductions could be used by small businesses to reduce private insurance costs, making insurance coverage more affordable, and reducing the need for either tax credits on the exchanges or for Medicaid coverage. 

Best Practices and Protections Against Unintended Consequences 

To help spur faster state action on waivers, as well as improve transparency and replicability, CMS should consider authorizing the Center for Medicare and Medicaid Innovation to develop a set of standardized set of waivers with predictable benchmarks available for states to quickly measure their ideas. 

Below, we propose ideas for potential frameworks that CMMI could develop, which states can attempt to implement in a more predictable, pre-defined way: 

1. State Innovation Zones.  States should have the opportunity to grant participating providers freedom from certain federal regulations such as the Medicare freeze on physician-owned hospitals.

2. Auto-enrollment. A state may use waivers to develop ultra-high-deductible non-QHP (qualified health plan) products using funding from individual and/or employer penalties.

3. Private option Medicaid expansion. A standardized option might offer guidelines as to what cost-sharing requirements and premiums (if any) might look like for Medicaid populations shifted to private coverage. 

4. Expanding employer-based enrollment. Subject to conditions, states could use tax credits and cost-sharing subsidies to offset the cost of individual coverage in the small group market.

5. Private Exchange Option. States could make federal tax credits available through private exchange options for individuals and small businesses, with states having the option to shift their own employees and retirees (and perhaps able-bodied Medicaid enrollees) to the exchange.

Conclusion 

Greater congressional clarity would encourage more innovative state waiver applications and programs for delivering affordable, high-quality coverage at a lower cost for taxpayers and uninsured. 

Federalizing health care responsibilities with explicit accountability for costs and outcomes would bring much needed rationality to the status quo.

Waivers along these lines would finally align both funding and responsibility with the state authorities who are in the best position to create competitive, sustainable markets for individual and small group insurance. The federal government could then concentrate on reforming the tax treatment of health insurance, and modernizing Medicare.

The result would be a system with more cleanly-designated federal and state responsibilities, and where voters could allocate the credit—or blame—with a more realistic expectation of accountability.

Paul Howard is a senior fellow and director of health policy at the Manhattan Institute. Follow him on Twitter here

Yevgeniy Feyman is an adjunct fellow at the Manhattan InstituteFollow him on Twitter here.

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