Giving states power could be Trump’s ticket to preventing ObamaCare’s collapse

The Senate’s failure to swiftly pass legislation replacing ObamaCare has forced the Trump administration and state lawmakers across the country to consider an alternative plan to pursue should Congress remain in gridlock, and based on what is known so far, the back-up plan could end up being reformers’ best chance to stop the ObamaCare death spiral.

The Obama administration generally opposed free-market alterations to Medicaid and substantial reforms of the ObamaCare model, but the Trump administration has signaled its willingness to work with states on reforming Medicaid and waiving many of the most burdensome parts of the Affordable Care Act. States looking to fix their collapsing exchanges have an important opportunity to make much-needed changes while an administration favorable to reform still occupies the White House.

Under Section 1115 of the Social Security Act, states can seek approval to enact unique reforms to their Medicaid and Children’s Health Insurance Program (CHIP) systems. For instance, states can apply to use federal funds to pay for state-run reinsurance pools to subsidize sick enrollees, which when operated properly, have proven to help states keep health insurance prices low by moving some of the costliest people out of the traditional insurance system.

{mosads}States can also apply for a waiver that would allow them to require many Medicaid recipients, especially those who are able-bodied adults, to contribute to the costs of their care. For example, states can mandate some enrollees cover co-pays. States can also enact work requirements and time limits, encouraging many people to enter the private health insurance market and move toward self-sufficiency, shoring up states’ budgets.

Section 1332 of the Affordable Care Act also provides many opportunities for reform. It authorizes the Department of Health and Human Services (HHS), beginning this year, to allow lawmakers to pursue alternate health care models using State Innovation Waivers.

Although State Innovation Waivers are limited—they can’t, for instance, be used to waive the ban on excluding people with preexisting conditions—they can be used to make a variety of important changes, such as ending the employer mandate, which requires businesses with 50 or more full-time employees to provide insurance or else pay a penalty, a provision that has caused many small businesses to cut staff and/or hours. States can also use these waivers to change the ACA’s actuarial value mandates, government price controls that undermine the health insurance market and limit consumers’ options.

Perhaps most importantly, states can use a waiver to expand the insurance options available on exchanges—giving people the ability to choose insurance plans that better fit their needs—and to change what qualifies as an “essential health benefit,” which are those benefits the Affordable Care Act requires all insurance companies to cover in plans offered in ObamaCare exchan0ges.

These two reforms are vital, because ObamaCare’s insurance mandates have kept insurance premiums and deductibles so high that many younger, healthier Americans have chosen not to buy qualifying health insurance plans, creating a situation in which older, sicker patients make up an ever-increasing proportion of the exchange population. This has incentivized insurance companies to leave exchanges at a breakneck speed. The Centers for Medicare and Medicaid Services projects 1,300 counties, about 40 percent of all counties, will have only one insurance option in their ObamaCare exchange in 2018. About 49 counties will have no insurance options.

The most significant drawback to the waivers is that they are only for a period of five years, which means if a state were to have a waiver approved today, a new administration could deny the waiver’s extension in 2022, should Trump fail to get reelected in 2020. However, this problem could be resolved by Republicans in Congress, who might be willing to pass legislation extending the waiver period as part of a watered-down ObamaCare “fix” bill.

Although it would be much better if Congress were to pass significant health care reform legislation that would implement free-market, pro-liberty reforms, the waiver options given to states, coupled with Trump’s willingness to approve them, could provide to state lawmakers the flexibility they need to do what Congress now seems incapable of accomplishing: stopping the ObamaCare system from collapsing.