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With Innovation Waivers, States Can Go Their Own Way on Obamacare

States can eventually drop major portions of the health law if they plan to maintain the same level of coverage at the same cost to the federal government.

At a time when most Republicans are more focused on dismantling the Affordable Care Act (ACA), Arkansas Republican state Sen. David Sanders is focused instead on reshaping the existing law along conservative lines. Sanders wants to use a provision under the ACA to transform the entire health-care system in Arkansas.

“There’s a continuum in discussions of health care,” Sanders says. “On one end, there’s the drive toward a single-payer model. On the other end is a consumer-focused, individualized care system that provides more choices, more flexibility, and is transparent in terms of price and quality.”

It is the latter end of the continuum that Sanders wants to build in Arkansas. He plans to use an ACA waiver that provides an unparalleled level of flexibility -- albeit within some major parameters -- to get it. Arkansas already has an existing waiver under the health reform law that has allowed it to privatize its Medicaid system. But the additional waiver, known as the section 1332 or state innovation waiver, would allow Arkansas and other states starting in 2017 to drop major portions of the law, including the individual mandate or the insurance exchange requirement, if they have a viable plan that maintains at least the same level of coverage at the same cost to the federal government. As long as states can do that, which is no small feat, they can take the federal money they would have received and use it how they see fit. 

In other words, blue states, for example, could decide if they’d like to create a public option for the insurance exchanges that would otherwise be dominated by private or nonprofit players. Massachusetts could decide to use federal money to create cheaper plans for people who straddle the income line for Medicaid. States such as Maryland or Oregon could use the waiver to enhance their own efforts to better control spending and provide more coordinated care.

The waiver, which also provides for states to make changes to Medicare and the Children’s Health Insurance Program, is a “broad statutory invitation for states to consider many sorts of unprecedented changes to health-care policy within their borders,” says health policy expert John McDonough of Harvard University.

McDonough points to Vermont, where officials want to create the country’s first single-payer system. Vermont was the first state to announce its intention to seek a 1332 waiver. The annual costs of the plan, though, will be more than the estimated $275 million being offered by the feds under the ACA. It will cost about $1.8 billion a year more, McDonough says.

Arkansas’ Sanders is being cagey about specific policy proposals that his plan might include, but he says he’s going to submit a bill in the 2015 legislative session that would authorize state officials to pursue the waiver. If that sounds a bit premature, just consider how long it might take to craft a proposal that could meet federal muster and grant enough time to win over reluctant interest groups on the political front.

The lack of specificity from Arkansas is causing some concern. Observers want more details: Is Arkansas talking about vouchers or health savings accounts for all? “When you start to throw around words like ‘consumerism,’” says Judy Solomon, vice president for health policy at the Center on Budget and Policy Priorities, “is this something that’s evidence-based or are we just engaging in what I would call wishful thinking about incentives and how they really drive people to make their decisions?” 

No matter what it does, Arkansas likely won’t be the only conservative state looking into a 1332 waiver. “Once we get over the anti-Medicaid expansion phase of ACA implementation,” says McDonough, “many Republican health folks are going to start thinking about their own versions of health system transformation, and 1332 could be an important part of the pathway.”  

Chris covers health care for GOVERNING. An Ohio native with an interest in education, he set out for New Orleans with Teach For America after finishing a degree at Ohio University’s E.W. Scripps School of Journalism. He later covered government and politics at the Savannah Morning News and its South Carolina paper. He most recently covered North Carolina’s 2013 legislative session for the Associated Press.
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