State Flexibility and Universal Coverage

With the health care industry in a state of limbo amid news of ACA repeal, repair and replace, one idea that has received far less attention than others is the concept of state flexibility.

Republicans have used this notion to both bolster a state’s rights argument, as well as point to a means for expanded health care coverage driven on a state level.

One area for state-driven policy is the ACA’s innovation waivers, a concept embraced by several governors across the country, but unlikely to gain steam while Repeal & Reform takes shape. Nine states have enacted laws related to Section 1332 waivers, long-term planning solutions which allow states to pursue new approaches to health care by exempting them from various aspects of the ACA. States must offer a viable plan that maintains (or increases) the level of coverage in the ACA at the same cost to the federal government to qualify.

Section 1115 waivers allow states to implement changes that don’t adhere to federal rules for the Medicaid program; this is the basis for Kentucky HEALTH, an innovative plan designed to meet the unique needs of that state. Future CMS administrator Seema Verma will likely be instrumental to allowing innovative state Medicaid waivers allowing work requirements and health savings accounts. Still, a per-capita cap based system would likely not be permitted without some form of governmental control.

Essential health benefits are an area where states could drive the conversation. Republicans have argued that minimums contained in the ACA force issuers to charge higher premiums. Some have floated the idea of allowing states to design a slimmed down version of mandatory benefits that would ensure basic care is covered while tamping down costs. There is also legislation that would allow states to set the age band ratio for their unique population or a standard 5:1, to better reflect the true cost of care.

There are also states that had preexisting condition laws and coverage for children on their parents’ policy until the age of 26 — among other patient protection laws — on their books before the enactment of the ACA.

Is state flexibility the answer for everything that ails health care today?

Certainly, there are many things states can do unilaterally. But a quick look back at health care coverage pre-ACA paints a picture. 16.1 percent of Americans were uninsured in the first quarter of 2009 when President Barack Obama was sworn into office, while conservative estimates in the fourth quarter of 2016 peg the uninsured rate at 10.9 percent.

Wisconsin found some success with a non-federally funded pre-ACA high risk pool, but most states are wary of them. Those that aren’t would demand federal dollars to get one up and running.

States are generally OK with a federal hand — but only to a point. Some governors and state legislatures hate that the feds took over rate review, network adequacy, and benefit design. Other states have even asked that the federal exchange be dismantled.

The Congressional Budget Office has stated there would have to be some level of minimum coverage established (read: nationally) before any assumptions about enrollment or coverage could be made. 

Republicans are big believers in overseeing how federal dollars are spent; as Sen. Chuck Grassley (R-Iowa) recently said, “making sure taxpayer money is well-spent is always a priority, so even if we give states more control over Medicaid, we would still need federal oversight to make sure services are delivered as intended.”

Rising drug prices are something states have tried to tackle themselves (see California and Ohio), but efforts like reimportation, limiting pay-for-delay agreements between brand and generic companies, and ending ‘evergreening’ efforts to retain patents, would need to be addressed on the federal level to be successful.  

ACA mandates and a tax penalty have failed to drive sufficient healthy young people into the marketplace; valid questions have been raised about what the incentive for coverage will be once mandates have been repealed. Cost sharing reductions and other guarantees to issuers against loss have failed to keep many carriers from fleeing the exchanges; what mechanism brings them back that’s not federally imposed?

While these questions don’t yet have answers, they do point to the need for uniformity and stability, two things carriers have identified as required for their participation in the market. States have achieved great success in molding federal programs to their unique populations, but rarely is that without guidelines from the federal government.

State flexibility may be an important part of health care’s future, but it is unlikely to be free of federal involvement.


Ipsita Smolinski is managing director of Capitol Street, where she advises clients on national health care policy and emerging trends.

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