Trump Administration Can Revoke States' Right to Regulate Obamacare, But Will It?

The federal government's response to Idaho's unprecedented plan to ignore parts of the federal health law could have ripple effects throughout the country.
by | February 28, 2018
Health and Human Services Secretary Alex Azar speaks to the House Ways and Means Committee about the federal budget. (AP/Jacquelyn Martin)

Update: On March 8, the Trump administration rejected Idaho's plan and threatened to take over enforcement in the state if it doesn't comply with the law.

The Obamacare debate that overtook Capitol Hill last year is back. But this time, the epicenter is in a state capitol.

Last week, a bipartisan group of governors released their blueprint for improving health care, calling on the Trump administration to, among other things, restore Obamacare subsidies. Three days later, 20 Republican attorneys general filed a lawsuit, arguing that the GOP tax law passed in December makes Obamacare unconstitutional. 

But it's in Boise, Idaho, where the debate is getting the most attention and has the potential to shock health care marketplaces across the country.

To stabilize the marketplace, Idaho GOP Gov. Bruce Otter signed an executive order in January allowing health insurance plans to ignore the Affordable Care Act (ACA), President Obama's signature legislation. Otter's "creative options" for reducing premiums include eliminating maternity coverage, charging higher prices for older patients and refusing to cover preexisting conditions. As long as insurance companies offer one plan compliant with the ACA, noncompliant plans will be welcome under Idaho's new rules.

With Blue Cross hoping to offer "Freedom Blue" plans in March, many health policy experts expect lawsuits to be filed against Otter's unprecedented policy. No other state has attempted similar changes without first getting federal approval. Idaho isn't even asking for it.

The question now is whether the Trump administration -- which supported failed efforts to repeal Obamacare last year and has since taken several actions to weaken the law -- will interject in Idaho to protect the most basic tenets of the ACA. If it doesn't, health policy observers expect other states to pursue similar changes.

But the question goes beyond whether the feds will stop Idaho in its tracks: If any state fails to enforce federal health laws, the federal government has the ability to turn it into a "direct enforcement state," meaning the state cedes its regulatory powers to the federal Centers for Medicare and Medicaid Services (CMS).

A state can also choose this arrangement for itself. When the ACA first passed, four conservative states -- Missouri, Oklahoma, Texas and Wyoming -- did just that, largely out of opposition to the law.

In Oklahoma, for instance, residents voted overwhelmingly on a ballot measure to keep the state from enforcing their end of the ACA. And when the state received $54 million from the federal government to implement the law, the governor gave it all back.

Is Idaho next?

Idaho hasn't expressed interest in becoming a direct enforcement state, and it remains to be seen what the official reaction will be from the Health and Human Services Department.

“I just don’t believe in premature opinions on complex, important topics -- serious, weighty matters,” HHS Secretary Alex Azar told reporters last week. "Let's see where Idaho ends up."

But given President Trump’s consistent undermining of the law, it’s unlikely that CMS will swoop in and declare Idaho a direct enforcement state, says Sabrina Corlette, research professor at Georgetown University's Center on Health Insurance Reforms.

If the federal government does give Idaho the green light, some health policy experts wonder just how much CMS will directly enforce Obamacare in the four existing direct enforcement states going forward. There is no reason to believe that CMS didn't enforce the law in those four states last year, but as Trump and the Republican-controlled Congress continue to weaken the law with actions like repealing the individual mandate, there are increasingly less regulations to enforce altogether.

Although becoming a direct enforcement state seems like a political win for states opposed to the ACA, state officials don’t recommend it.

Mike Rhoades, Oklahoma's deputy insurance commissioner, admits it hasn’t been easy, and an official with the Wyoming Department of Insurance says it’s only worked there because of how sparsely populated the state is.

“I can’t imagine in a heavily populated state that it would work,” says Denise Burke, health care analyst at the Department of Insurance in Wyoming.

In practice, a direct enforcement state must turn over all paperwork from insurance carriers in their state to the federal government. They rely on the federal government to make sure their marketplace plans are up to snuff and to negotiate big changes, such as premium increases. Essentially, they act as middlemen between the federal government and insurance companies.

“It’s a pain in the butt for insurance companies because they still have to turn in documents to the state to make sure everything is complying with state laws, in addition to the federal government," Corlette says. "And quite frankly, states in general are best positioned to address issues on the ground in their market."