If the Supreme Court in King v. Burwell strikes down subsidies to the buyers of health insurance on the federal exchange, President Obama will call on Congress to change the law to allow the subsidies. There also will be enormous pressure on elected officials to establish state exchanges in the 34 states that don’t have them. Instead, congressional Republicans should be laying the groundwork for market-friendly health reforms and devolving power to the states, meanwhile helping Americans who have difficulty purchasing coverage made unaffordable by the Affordable Care Act.
The seeds of far-reaching reform already exist in an obscure provision of the law.
Section 1332 of ObamaCare allows states to craft their own health-care reform plans while waiving many of the law’s most onerous requirements. If a state drafts its own plan, it is exempt from enforcing both the individual and employer mandates, having to furnish the law’s tax credits and cost-sharing coverage subsidies, and enforcing the law’s essential health-benefits requirement mandating that plans cover a nationally standardized suite of medical benefits.
But Section 1332 would require changes to be an effective alternative to the status quo. First, new alternative state health plans could only take effect starting in 2017 so this date would need to be moved up. Second, Section 1332 gives far too much discretion to the executive branch to determine whether a state plan is consistent with the hazy federal requirements to qualify for a waiver.
To earn a waiver, state reform plans must provide coverage that is at least as “comprehensive,” “affordable” and widespread as that found in the Affordable Care Act. The plans also must not increase the federal deficit. But the Obama administration has provided little specific guidance as to what a state reform plan must look like in order to qualify for a waiver. Moreover, the secretary of Health of Human Services determines whether a plan meets all of these requirements. And as long as President Obama is in office, it is highly unlikely that a state reform plan, particularly one from a Republican governor, would ever be approved under the law as written.
Section 1332 needs to be amended to narrow the discretion vested in HHS to approve or reject state health-reform plans and grant waivers. It also needs to more explicitly and precisely empower states to enact innovative health reforms, while providing them with the federal funding necessary to implement them.
How? Congress could specify that state waiver applications will be presumptively approved so long as they are deficit-neutral to the federal government. States would then be expected to make adjustments to their plans, as needed, if subsequent experience demonstrates that their coverage or cost goals were not met.
Alternatively, Congress could more concretely define the meaning of Section 1332’s currently ambiguous coverage requirements. This would leave less discretion in the hands of an unfriendly administration.
Second, Congress should move up to 2016 the date when Section 1332 waivers can become effective. This will allow states to more quickly implement alternative plans. Between now and then, Congress could agree to provide short-term relief for affected individuals if the Supreme Court strikes down premium subsidies on federal exchanges.
Finally, Congress should explicitly authorize different ways to help states fund their reform plans. Although state plans must be deficit-neutral under Section 1332, they should be permitted to draw on federal spending designated for the subsidies that will be disallowed if the Supreme Court sides with the plaintiffs in King v. Burwell.
In a New York Times op-ed last month, Grace-Marie Turner and Diana Furchtgott-Roth proposed to block-grant existing federal spending on subsidies and premium assistance to the states. This would help states to subsidize the purchase of health-insurance plans they’ve approved. Congress could encourage cost-containment by allowing states to capture a share of the savings if they are able to meet coverage goals more efficiently. Another funding alternative would for be for Congress to provide premium assistance to qualified individuals in the Affordable Care Act but specify that it may be used to buy any plan in a state’s individual marketplace.
Modifying Section 1332 in these ways will give states the freedom to craft meaningful reforms in lieu of ObamaCare. Not every state would necessarily move in a free-market direction. Vermont was interested in using a waiver to install single-payer health care before it scuttled that effort a few months ago, in light of its cost. But state waivers will move the country away from the one-size-fits-all, federally imposed approach of the Affordable Care Act.
The oral arguments in King suggest that the court may be reluctant to strike down federal subsidies unless there is a plausible alternative. Empowering states with the ability to expand coverage while lowering costs would be a first step in the right direction.
