With current financing of U.S. health care highly dependent on federal health spending and tax subsidies for private insurance, state leaders seeking to take health reform to the next level face the quandary of losing federal funding flows if they act unilaterally to control health care spending, according to a new analysis from the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).
However, Section 1332 of the Affordable Care Act (ACA) opens the door for states to fundamentally rearrange state and federal government roles in regulating and financing health care by allowing states to request federal waivers of many key ACA provisions. The catch, however, is that alternate state reforms must achieve the same or better health coverage and affordability for state residents and be budget-neutral for the federal government.
To illustrate the range of potential 1332 coordinated waivers, the study by Chapin White, Ph.D, and Virginia Kotzias, M.P.P., both of the RAND Corporation, explores two far-reaching but very different approaches. The first approach would automatically enroll almost all state residents in a universal coverage plan financed by a federal lump-sum payment to the state and a new state payroll tax. A key stumbling block would be the high tax rate required to fund a single-payer plan, particularly if it offers coverage that is more comprehensive than today’s norms.
The second coordinated-waiver approach would replace marketplace subsidies and the Medicaid and Children’s Health Insurance Program (CHIP) for lower-income children and nondisabled adults with a voucher to purchase private insurance—either an individual plan in the marketplaces or tax-preferred coverage from an employer. In some states, projected funding levels for Medicaid and the marketplaces would be sufficient to support a broad-based voucher program, the analysis shows. In other states, a voucher-based approach would face challenges in meeting the ACA Section 1332 coverage and affordability standards. States pursuing a voucher approach could potentially tap into additional federal funding if they agreed to implement the ACA Medicaid expansion as a base for the waiver.
The analysis’ findings are detailed in a new NIHCR Research Brief—Health Reform 2.0: Alternate State Waiver Paths Under the Affordable Care Act—available here.
In general, states developing either a single-payer approach or a voucher approach would face an easier path if their waiver plans include substantial and effective cost-control components, according to the analysis.
The authors note that the two state-based waiver options outlined in the “analysis are likely to appeal to polar opposites of the political spectrum. Nevertheless, they share key features. Both state-based plans would convert open-ended federal payments under the current financing system into a lump-sum federal contribution. Such an approach would better position a state and its residents to reap the rewards of system-wide cost-containment efforts.”