A Magic Obamacare Waiver?

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What would you think about a federal waiver that would get rid of many Obamacare state mandates in return for giving that state the freedom to innovate in health care delivery? It would sound too good to be true, right? Well, a waiver that sounds like this does exist. It’s called a “Waiver for State Innovation,” or a Section 1332 waiver. And while the name sounds appealing, the reality of what can be accomplished under it doesn’t live up to the hype.
This is why I fear that state Senator David Sanders is bound to be disappointed if the legislature passes his bill, SB 828, to authorize Arkansas to seek a Section 1332 waiver. Senator Sanders talks a good game about free market health care reform, but it’s difficult to see how such reform could be accomplished under this waiver.
Under Section 1332 of the Affordable Care Act, states can apply for a waiver that will do away with many of the insurance requirements in Obamacare, the individual mandate, a health insurance exchange, and the employer mandate. In return, the state must design a health care system that covers as many people as Obamacare intends to cover, has insurance that is as “affordable” and comprehensive as Obamacare, and does not increase the federal deficit. To pay for this state-designed health care system, the federal government will provide to the state all the money that would have gone to that state’s residents in terms of insurance tax credits, small business tax credits, and cost-reduction payments.
While this may sound attractive for states, the federal government is certain to set a high bar in terms of meeting the various requirements for any state healthcare program. As we’ve seen with federal Medicaid waivers, federal health care bureaucrats generally frown on state-level attempts at innovation. Although highly unlikely, it is at least conceivable that under the right leadership at the federal level, a state could use a Section 1332 waiver to do some innovative things with health care reform.
Unfortunately, any reforms under this waiver would almost certainly have to be a top-down, government-run program. Private sector innovation that would reach the same goals seems to be precluded by the waiver’s mandates. For instance, the comprehensive insurance coverage mandate appears to exclude the possibility of a state program designed around high-deductible insurance policies coupled with health savings accounts. The “innovation” waiver would not allow a state to enact market-based innovative health care strategies to meet the health care needs of its residents.
Another roadblock to true innovation is found in one important exception to the 1332 waiver: Medicaid. The federal government has another waiver program for Medicaid, but it is separate from the 1332 waiver. That means any desire by a state to do include Medicaid recipients as part of a global health care reform effort are almost certain to be rejected by the federal government. While Section 1332 encourages coordination of various federal health care waivers, whatever the state wants to do with Medicaid is outside the scope of the legislation Sen. Sanders is proposing. It’s difficult to see how this waiver would improve the flaws of the private option, if that is what Senator Sanders is thinking it would accomplish.
Over at the Foundation for Government Accountability, Jonathan Ingram and Nicholas Horton have done a thorough job of detailing the drawbacks of the Section 1332 waiver. Check out their report to read more on why this waiver “is not an escape hatch from Obamacare. As the Obama administration itself stresses, it is a backdoor to implement even more liberal welfare policies.”
As is usually the case, if something sounds too good to be true, then it probably is. Although the Section 1332 waivers sound good, they are simply an alternate route to Obamacare implementation.
I tried to contact Senator Sanders to ask a few questions about his legislation. He did not respond to my repeated attempts to contact him. SB 828 will likely be considered in the Senate Insurance and Commerce committee next week.

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