As the COVID-era expansions subside for Medicaid and the ACA, policymakers have an opportunity to rethink how Medicaid and the ACA work for remaining recipients. But rather than address the programs’ issues, policymakers have opted to expand the rolls, exacerbating the programs’ problems. That needs to change. Reforms should help ensure that both Medicaid and the ACA marketplaces work for enrollees, but one-size-fits-all federal reforms are unlikely to help. Instead, the Choices for All Project identifies necessary changes in federal policy and several related health reforms that states could champion.
Expand State Waiver Authority
States need more power to make Medicaid and the ACA work for enrollees. That requires taking full advantage of Section 1332 and Section 1115 waivers in existing laws.
Section 1332 State Innovation Waivers provide a promising avenue for states to improve healthcare access and affordability in their own unique ways. This flexibility gives states the ability to tailor their healthcare systems to their specific needs, which can lead to better outcomes for their residents. These waivers allow states to deviate from certain ACA provisions, so long as they can demonstrate that their alternative approach still meets certain goals set out in the law. Waivers must meet four “guardrails:”
- Comprehensiveness: The plan must provide coverage that is at least as comprehensive as that mandated under the ACA.
- Affordability: The plan must ensure that coverage is as affordable as it would be under the ACA.
- Scope: The plan must cover at least as many residents as the ACA provisions would.
- Deficit neutrality: The plan must not increase the federal deficit.
Federal policymakers should simplify the waiver application process to make it more transparent, while providing guidance and support to states seeking to implement innovative approaches to healthcare. Policymakers might also consider a provision that presumptively approves waivers that states certify will meet the existing Section 1332 guardrails. Finally, there should be a fast-track process for states that have already received a waiver and want to renew or modify it. This would allow states to bypass another lengthy application process and receive approvals more quickly.
The requirements for the approval of Section 1332 waivers should also be loosened to give states more freedom to design their own healthcare systems if they meet the overall goals of the ACA. States should be able to satisfy the scope guardrail by offering plans that are not as comprehensive as standard ACA plans. Importantly, they would still be required to offer other plans that met the comprehensiveness and affordability requirements.
Liberalizing and expanding the use of waivers still requires finding policies that can improve state health programs. Below we identify potential reforms that states could champion.
Expand Access to Catastrophic (Copper) Plans
Catastrophic insurance plans are rare in America, yet they make sense for many young and healthy Americans. These plans are often labeled “Copper” plans because insurance companies are expected to cover only 50 percent of expected health costs (compared to 70 percent for silver plans). The ACA clamped down on consumers’ freedom to choose catastrophic coverage. To be eligible, individuals need to be under age 30 or qualify for a hardship/affordability exemption. On top of that, tax credits for premiums are generally not eligible for the purchase of copper plans. Because of these issues, only about 1 percent of ACA enrollees choose a copper plan. Expanding access to copper plans to more individuals would fill an important need.
Offer Individual Health Accounts to ACA Recipients
Health Savings Accounts (HSAs) are not available for most ACA recipients. Plans offered on the ACA exchanges have cost-sharing rules that don’t meet the requirements of high-deductible health plans (HDHP), which are required if individuals wish to contribute to an HSA. The Choices for All Project proposes given ACA recipients to the newly proposed Individual Health Accounts (IHAs).
Unsubsidized ACA participants would face the same IHA contribution rules as employer-sponsored insurance (ESI) participants. They could make tax-free contributions to their IHA up to a maximum level, less the premiums they pay. For subsidized recipients, however, the tax benefits from making pre-tax IHA contributions would be minimal: few recipients earn enough to pay income taxes, particularly after accounting for premium tax credits. To ensure low-income Americans can benefit, states should be able to experiment with models in which federal and state contributions are deposited into a recipient’s IHA.
For more information, read our proposal on creating Individual Health Accounts.
Individual Health Accounts for Medicaid Recipients
Individual Health Accounts could be made available to Medicaid recipients through Section 1115 waivers. Currently, federal rules force most Medicaid recipients into a one-size-fits-all system of health. Choice is minimal. IHAs offer an opportunity to empower these recipients. We propose states pursue experiments that offer Medicaid recipients the option to have an IHA with contributions made to the account by the state’s Medicaid Program. In exchange, states would increase cost-sharing requirements one-for-one with the contributions made. Exemptions from cost-sharing could be made for certain preventive services. Importantly, the requirements would include annual out-of-pocket maximums that match the annual contribution to the recipients IHA. This ensures recipients would not be made worse off and the total spending per recipient would remain the same.
Direct Primary Care for Medicaid Recipients
With the rapid growth of Medicaid Managed Care Organizations contracting with state governments to cover enrollees for a capitated cost, finding ways to reduce the growth of per capita Medicaid spending is in the federal and each state government’s interest. States could obtain waivers to experiment with offering Direct Primary Care coverage to Medicaid enrollees, either as a carve out from existing per capita spending or on top of traditional coverage. The goal would be to lower long-term per capita Medicaid spending by having direct primary care needs covered at a much lower cost than in existing arrangements.
David and Diane Steffy Fellow in American Public Policy Studies
About Lanhee J. Chen
Lanhee J. Chen, Ph.D. is the David and Diane Steffy Fellow in American Public Policy Studies at the Hoover Institution and Director of Domestic Policy Studies and Lecturer in the Public Policy Program at Stanford University. A veteran of several high-profile political campaigns and himself a candidate for statewide office in California, Chen has worked in politics, government, business, and academia. Chen was a candidate for California State Controller in 2022. He was the strongest-performing statewide Republican, earned more votes than any other Republican candidate in the country in the general election, and won endorsements from every major newspaper in the state. Chen has advised numerous major campaigns, including four presidential efforts. In 2012, he was policy director of the Romney-Ryan campaign, and served as Governor Mitt Romney’s chief policy adviser, a senior strategist on the campaign, and the person responsible for developing the campaign’s domestic and foreign policy. During the 2014 and 2018 campaign cycles, Chen served as a Senior Adviser on Policy to the National Republican Senatorial Committee (NRSC). In addition to his academic appointments, Chen is a Partner at the Brunswick Group, a global business advisory firm, and a member of the Board of Directors at El Camino Health in Northern California. He also advises and invests in early-stage companies and was an operating partner and strategic advisor at NewRoad Capital Partners, a private equity fund. From 2014 to 2018, Chen served as a presidentially-appointed and Senate-confirmed member of the Social Security Advisory Board—an independent, bipartisan panel that advises the president, Congress, and the Commissioner of Social Security on matters related to the Social Security and Supplemental Security Income programs. He also served in the George W. Bush Administration as a senior official at the U.S. Department of Health and Human Services. Chen’s writings have appeared in a variety of outlets, including The Wall Street Journal, The New York Times, and The Washington Post, and he is a regular contributor at CNN Opinion. He has also provided political analysis and commentary on every major television network. Chen was honored in 2015 as one of the POLITICO 50, a list of the “thinkers, doers, and visionaries transforming American politics.” He earned a similar honor in 2012 when he was named one of POLITICO’s “50 Politicos to Watch.” In 2017, Chen was the William E. Simon Visiting Professor in the School of Public Policy at Pepperdine University. At Stanford, he is also an affiliated faculty member of the Center on Democracy, Development and the Rule of Law (CDDRL) at the Freeman-Spogli Institute for International Studies and was Lecturer in Law at Stanford Law School. An eight-time winner of Harvard University’s Certificate of Distinction in Teaching, Chen’s scholarship has appeared or been cited in several of the nation’s top political science journals. Previously, Chen practiced law at Gibson, Dunn & Crutcher LLP and was the Winnie Neubauer Visiting Fellow in Health Policy Studies at The Heritage Foundation. Chen serves in a variety of leadership and advisory roles in nonprofit organizations. He is a Director of the Foundation for Research on Equal Opportunity (FREOPP); Co-Chair of the Policy Advisory Board for Free the Facts, a policy education organization; a member of the Board of Directors of the Winston Health Policy Fellowship; a member of the external advisory committee for the AAMC Research and Action Institute; and a member of the Council of Scholars for the Better Medicare Alliance. He is also a member of the Committee of 100, an organization of prominent Chinese Americans. Chen earned his Ph.D. and A.M. in political science from Harvard University, his J.D. cum laude from Harvard Law School, and his A.B. magna cum laude in government from Harvard College. He is a member of the State Bar of California. A native of Rowland Heights, California, he currently lives in the San Francisco Bay Area with his wife and children.
About Tom Church
Tom Church is a policy fellow at the Hoover Institution. He studies health care policy, entitlement reform, income inequality, poverty, and the federal budget. He also contributes to PolicyEd, the Hoover Institution’s initiative to educate Americans about public policy. He has researched the fiscal effects of major health care proposals. In 2015 he edited the book Inequality & Economic Policy: Essays in Memory of Gary Becker with John B. Taylor and Chris Miller. He also hosts The Libertarian podcast with Richard Epstein. Church received his master’s degree in public policy with honors from Pepperdine University, specializing in economics and international relations. He has a bachelor’s degree in mathematics and political science from the University of Michigan.
About Daniel Heil
Danny Heil is a policy fellow at the Hoover Institution whose focus is on the federal budget, tax policy, and the federal antipoverty programs. Heil’s interests include replacing failed policies with state and federal initiatives that alleviate poverty by encouraging workforce participation and human capital development. He has also written on the perils of telecommunication regulations and the economic effects of e-business. Heil served as Governor Jeb Bush’s economic policy adviser during the 2016 presidential campaign, counseling him on the federal budget, tax policy, and the federal antipoverty programs. Heil received a master’s of public policy degree with a specialization in economics and American politics from Pepperdine University.