Obamacare Waiver Gives States Opening For Huge Reforms. But Will They Take It?

Experts don’t expect states to pursue foundational reforms at first under the ACA waiver program.

US President Barack Obama delivers remarks marking the 50th anniversary of the Voting Rights Act in Washington, DC, August 6, 2015.
National Journal
Aug. 18, 2015, 1 a.m.

Start­ing in 2017, the Af­ford­able Care Act will al­low states to use waivers to pur­sue vir­tu­ally any type of pro­pos­als for health care re­form that they can ima­gine. It’s a huge op­por­tun­ity for states in­ter­ested in ex­pand­ing or chan­ging how health care is de­livered.

But will any­one ac­tu­ally take ad­vant­age of it?

Cali­for­nia has dis­cussed provid­ing health cov­er­age to its un­doc­u­mented im­mig­rants. Hawaii might want to re­in­sti­tute the more strin­gent em­ploy­er man­date that the state had be­fore Obama­care. Arkan­sas may use the waivers to con­tin­ue and re­shape its trend­set­ting “private op­tion” for Medi­caid ex­pan­sion.

At least a half-dozen states have taken pub­lic steps to­ward seek­ing a 1332 waiver, ac­cord­ing to a June re­port from Health Af­fairs.

The 1332 waiver is the ACA’s Swiss Army knife. States can ask for al­most any­thing, in­clud­ing re­lief from many of the law’s ma­jor pro­vi­sions, so long as it is de­term­ined by the Health and Hu­man Ser­vices De­part­ment that they are still work­ing to­ward the law’s goals of cov­er­age and af­ford­ab­il­ity. It is a huge, open-ended op­por­tun­ity that has had health policy wonks nerd­ing out since the law passed.

But so far, less than 18 months un­til they can be im­ple­men­ted, the biggest news about the waivers has been a fail­ure: Ver­mont’s am­bi­tious plan to cre­ate single-pay­er health care. At the end of last year, after months of plan­ning, the state an­nounced it wouldn’t be mov­ing for­ward with the pro­ject be­cause it was too ex­pens­ive.

Ver­mont’s ex­per­i­ence, paired with states’ frus­tra­tion that the Obama ad­min­is­tra­tion hasn’t giv­en them enough guid­ance on what they can pro­pose through the five-year waivers, has rat­cheted down ex­pect­a­tions about what states will ac­tu­ally do in 2017.

“Giv­en the Ver­mont ex­per­i­ence, I think that that’s cer­tainly something that every­body’s aware of,” said Joy Wilson, who is a health policy ex­pert at the Na­tion­al Con­fer­ence of State Le­gis­latures. “They don’t want to be in that space.”

“I think you’re still go­ing to see some am­bi­tious waivers,” ad­ded Joel Ario, a former Obama ad­min­is­tra­tion of­fi­cial and state in­sur­ance com­mis­sion­er who has ad­vised states on 1332 waiver plan­ning for the Man­att, Phelps & Phil­lips con­sult­ing firm. “But it was cer­tainly a cau­tion­ary tale about the chal­lenges you face.”

For now, the fo­cus is on more minor al­ter­a­tions. Com­monly floated op­tions in­clude lin­ing up the dif­fer­ing defin­i­tions of Nat­ive Amer­ic­ans between Medi­caid and the ACA’s in­sur­ance ex­changes or re­de­fin­ing the small-group mar­ket un­der the law. States could come up with plans to ease the trans­ition for people mov­ing from Medi­caid to ex­change cov­er­age or vice versa.

They would be mean­ing­ful changes, if on a much smal­ler scale than what Ver­mont had at­temp­ted.

“Ver­mont was try­ing something that was really ex­pans­ive and am­bi­tious,” said Heath­er Howard, dir­ect­or of the State Health Re­form As­sist­ance Net­work at Prin­ceton Uni­versity. “It doesn’t have to be that whole scale of im­prove­ment.”

If Ver­mont was a re­mind­er of the hurdles that states need to clear with the 1332 waiver, ex­perts say the oth­er prob­lem is that states feel like they don’t have enough in­form­a­tion from HHS to weigh the risks and re­wards. The timeline is already tight: State le­gis­latures must ap­prove 1332 waiver ef­forts, and most of them have already ad­journed un­til next year.

Then comes the ac­tu­al ana­lys­is and plan­ning, fol­lowed by ne­go­ti­ations with the feds — all with the specter of Obama’s ex­pir­ing pres­id­ency and the pos­sib­il­ity of a new ad­min­is­tra­tion with a very dif­fer­ent out­look that could render all of that ex­pen­ded en­ergy moot.

“It’s a heavy lift,” said Trish Ri­ley, ex­ec­ut­ive dir­ect­or of the Na­tion­al Academy for State Health Policy. “Then if the rules change mid­course, that’s something to think about.”

HHS re­cently re­leased more guid­ance for states and an­nounced a single con­tact point for state ques­tions about the waivers. But it hasn’t totally sat­is­fied states’ de­sire for more de­tailed in­struc­tions. More de­tails from the feds are ex­pec­ted, but the tim­ing re­mains an un­known.

“Most states feel like that’s not quite enough,” Wilson said. “It’s fine to tell me how to turn my pa­per in, but what’s my pa­per sup­posed to be about?”

This is the wrinkle: Un­der the ACA, the 1332 waiver pro­pos­als must be budget-neut­ral, they must cov­er a com­par­able num­ber of people to Obama­care, and they must provide a com­par­able level of be­ne­fits. With­in those con­straints, states can do al­most any­thing, up to and in­clud­ing a re­peal of the in­di­vidu­al man­date or, as Ver­mont had wanted to do, cre­ate a single-pay­er sys­tem.

“If a state can fig­ure out a way to meet those con­di­tions,” HHS Sec­ret­ary Sylvia Math­ews Bur­well said last month at a meet­ing with the na­tion’s gov­ernors, “we want to give states that op­por­tun­ity to come in.”

But many state of­fi­cials feel like they don’t have enough de­tail about how those vari­ous met­rics will be cal­cu­lated — which could end up be­ing the dif­fer­ence between an ap­proved waiver or a re­jec­ted one. And the plan­ning that goes in­to the ap­plic­a­tions isn’t free; Ver­mont had spent at least six fig­ures be­fore de­cid­ing its plan wouldn’t work.

Wilson de­scribed the im­passe between states and the ad­min­is­tra­tion this way: States want more in­form­a­tion about what they can do be­fore they put the time and money in­to plan­ning, but the ad­min­is­tra­tion is ur­ging states to give them a pro­pos­al and then the feds can tell states what they can do.

“I think there’s kind of this dance go­ing on,” Wilson said. “People don’t want to spend a lot of money put­ting something to­geth­er and then the ad­min­is­tra­tion says, ‘Nope, that’s not it.’”

In a rare bi­par­tis­an show­ing in­volving Obama­care, Demo­crat­ic Sen. Al Franken and Re­pub­lic­an Sens. Tom Cot­ton and John Booz­man — whose states, Min­nesota and Arkan­sas, have ex­pressed in­terest in the 1332 waivers — sent a let­ter to HHS this month ur­ging the ad­min­is­tra­tion to re­lease more spe­cif­ics about how it would eval­u­ate the cov­er­age and cost met­rics.

There are a num­ber of oth­er is­sues com­plic­at­ing things: Many states have a num­ber of demon­stra­tion pro­jects already un­der way un­der Obama­care, leav­ing few­er re­sources for 1332 plan­ning. They are also still work­ing out the kinks of reg­u­lar ACA im­ple­ment­a­tion, which could make it dif­fi­cult to try to come up with a strategy for re­ima­gin­ing or im­prov­ing it.

“I’ve heard a couple states say, ‘This sounds really in­ter­est­ing, I wish I could take it on now, but I’m still fo­cused on the core func­tion­al­ity,’” Howard said.

Ario said he would be watch­ing the 2016 state le­gis­lat­ive ses­sions for signs of how eager states are to pur­sue the 1332 waivers.

“If it ends up be­ing 20 or 30 states that have 1332 le­gis­lat­ive pro­pos­als un­der act­ive con­sid­er­a­tion, that would sig­nal that the in­terest is broad­er and that it may hap­pen more quickly,” he said. “If it’s still less than a dozen states, that tells you that it’s prob­ably on the slow path.”

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