As Federal Health Law Turns Three, We Should Leverage The Power of Federalism

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As the Patient Protection and Affordable Care Act (ACA, aka ObamaCare) turns three this week, states and employers are feeling the weight and complexity of the early stages of implementation. Pioneer reflects on how the nation can best move forward.

5 recommendations to move ahead on health reform:

Respect the states.  The Obama administration should give states the flexibility they need to implement reforms that are uniquely tailored to their needs and should extend the timetable for implementing reform by several years. The imposition of an unknown, nationalized program on the entire country has led to broad popular opposition. The Obama administration’s misinterpretation of Massachusetts’ health law, crafted to address the unique needs of a small, high-income state constituting 2 percent of the U.S. population, was imposed on the entire country. Though Obama is unlikely to change central provisions of the law, such as the individual mandate, there is hope on other fronts.

[message_box title=”Buy it today:” color=”blue”]”The Great Experiment: The States, The Feds, and Your HealthcareLearn more.[/message_box]

As the key months for implementing the Affordable Care Act begin, 30 governors are resisting key provisions of the law. But these leaders don’t need to act just as a phalanx of opposition; if they work with President Obama and Obama works with them, they can change the law’s future. The law won’t work without state and local execution of the reform. The more governors can tailor reforms to their state, the more they can mitigate premium spikes, doctor shortages, state budget shortfalls and other problems potentially caused by the law.

The timetable for state implementation should be extended because it would be consistent with the administration’s own explicit priority of working with states to get it right. Dr. Don Berwick, former head of the Centers for Medicare and Medicaid Services, one of many federal agencies involved in implementing health reform, stated, “Flexibility is the name of this game and we are going to work very hard to meet the needs of each and every state.”

States should work to secure key areas of flexibility’ e.g., to:

1. Provide flexibility for how to cover the “uncoverable”. The law mandates pre-existing conditions will be covered, but this approach ignores local market conditions and will result in 30%-80% premium spikes for millions. A few states, such as Minnesota, successfully guarantee coverage through state high-risk pools. Past state experiences strongly suggest that such high-risk pools can do the job at a cost of roughly $150 billion to $200 billion over 10 years, not the $1.75 trillion to $2.5 trillion required by the ACA.

Others might prefer to use different risk-adjustment mechanisms to encourage insurers to take on sicker patients. States should be able to use or maintain what works instead of being forced to switch.

2. Create consumer information exchanges. Plans for state exchanges assume that a government-sponsored online market for insurance will be the only place to buy a subsidized policy. But pushing just one government exchange prevents competition to contain costs and improve the consumer experience. And private brokers and existing exchanges already sell insurance. States don’t need to duplicate their work. Instead, the public exchange should focus solely on qualifying people for subsidies and providing consumer information.

3. Allow health accounts for all. The law mandates employers with more than 50 employees provide coverage. But tying insurance to employment is one reason people don’t have insurance that moves from job to job. Small employers are put in the impossible position of choosing between large premium increases and dropping health benefits. Many want to offer employees help, but the cost is too high. In place of the mandate, we could tweak the tax code to allow companies to contribute toward personal accounts to pay for insurance and other medical expenses that allow balances to be carried forward.

4. Encourage individuals to seek high-value plans by being active healthcare consumers. Central bureaucracies control costs only by diminishing innovation and the quality of care. A better path is to break the federal tax preference for individuals purchasing health insurance through their employers. Rather than penalizing individual insurance purchasers, we should let all consumers control their healthcare dollars.

The prejudicial tax advantage enjoyed by those with company insurance can only be changed over time. Policymakers should channel refundable tax credits to small-business employees and individuals purchasing insurance on their own who are most disadvantaged under the current system.

5. Experiment in Medicaid. States should be freed to administer their Medicaid programs under a welfare-like block grant. With broad authority over Medicaid, states can lift more people currently eligible for Medicaid into the mainstream market. States aligning regulations on benefits and premium assistance with refundable tax credit policies will give non-elderly, non-disabled enrollees the ability to choose among plans rather than be merely passive recipients of Medicaid services. The result is better coverage for the poor and reined-in costs.

These recommendations – flexibility at the state level, a right-sized plan to deal with pre-existing conditions, a level playing field for health insurance purchasers, and a thoughtful Medicaid reform – provide practical and necessary assistance for a healthcare policy that is still learning how to speak.