Oklahoma points the way to healthcare peace

Last week, Paul Howard and Yevgeniy Feyman of the Manhattan Institute highlighted a point often missed about the Freedom Caucus's latest demands for the AHCA, Paul Ryan's so-far-rejected ACA repeal bill:

The Washington Post reported that Freedom Caucus Chairman Mark Meadows said one “solid idea” that emerged at the meeting was allowing states to ask for waivers from Obamacare regulations like essential health benefits. The idea has sound roots, ironically, in the Affordable Care Act.

Health and Human Services Secretary Tom Price holds broad authority over administration of the Affordable Care Act, including the power to give additional flexibility to states and insurers under the law. Section 1332 of the ACA allows HHS to offer “state innovation waivers” for that allow states to waive some (but not all) of Obamacare’s insurance regulations in return for a block grant of ACA funding. States that want to keep the ACA status quo could do so, while Republican-led states could go in a different direction...

To receive a waiver, states simply have to design an alternative that is deficit neutral and does not result in a coverage loss. To make this even more attractive for states, Price should roll back an Obama administration rules that prevented states from combining Medicaid (1115) waivers with 1332 waivers. By coupling them, states could design less expensive coverage options in the individual market, and use the savings to help able bodied Medicaid enrollees buy private insurance. This could encourage a mix and match design process to meet the needs of different populations.

I made more or less the same point in the New York Times, with respect to the Cassidy-Collins bill introduced in the Senate on January 24, which reshapes but does not defund the ACA:

Allowing states to junk the A.C.A.’s coverage rules, channel subsidies through health savings accounts (which generally work only for people with significant resources), distribute a reduced subsidy pot to wealthier individuals or opt out of subsidizing coverage may strike many as a poison pill.

But Republican governors and legislatures that wish to do these things can do them right now, with the exception of opting out of subsidizing coverage entirely. The A.C.A. allows states to seek innovation waivers from the Department of Health and Human Services to remake their marketplaces, proposing alternatives to the law’s coverage rules, subsidy formulas and employer and individual mandates. The state must show that the alternative scheme will cover as many people as Obamacare would, as comprehensively and at comparable cost. With Tom Price as the secretary of Health and Human Services, conservative state governments could doubtless win approval for any plan they proposed.

Last month, Oklahoma's HHS secretary published recommendations put forward by a 1332 Waiver Task Force operating on that same assumption -- that Tom Price's HHS, which has encouraged 1332 waiver proposals, would grant states wide latitude to remake their marketplaces. The Oklahoma proposal proposes to do so very much along Cassidy-Collins lines.  Here are the core proposals, as annotated by Louise Norris at healthinsurance.org:

In 2018:

• The state would assume regulatory control over rates and plans, instead of deferring to the federal government for rate review (this would align with what nearly every other state already does).

• The state would also begin to focus on quality measures, value-based payments, and care coordination in an effort to decrease costs and improve quality.

• Oklahoma would allow a wider range of age-based premiums. The ACA caps the ratio at 3:1 for older versus younger enrollees. The AHCA, which was pulled before it reached a vote in the U.S. House, would have increased that ratio to 5:1. Oklahoma wants to implement something similar on a state level.

In 2019:

• Switch from HealthCare.gov to the Insure Oklahoma platform (Insure Oklahoma is a state-run program currently used for low-income residents; more details below)

• Establish “consumer health accounts” that would be similar to HSAs. The consumer health accounts would be funded with federal subsidy money, and the state is considering the possibility of automatic enrollment in individual market plans coupled with consumer health accounts (a similar proposal was part of the Patient Freedom Act, introduced earlier in 2017 by Senators Bill Cassidy (R, Louisiana) and Susan Collins (R, Maine).)

• The ACA’s metal level designations would be eliminated, and replaced with two standardized benefit designs: either a robust, traditional plan [with an actuarial value of 80%, roughly comparable to most employer-sponsored plans], or a high-deductible plan that works with the consumer health accounts.

• The state would “re-evaluate and reduce” the ACA’s essential health benefits requirements. The recommendations note, however, that preventive health care and behavioral health services (including substance abuse treatment) should be retained in the state’s guidelines. Those services are of particular importance to the state’s Native American tribes, and the 1332 waiver recommendations include efforts to preserve health care access and affordability for Native Americans (which was greatly expanded by the ACA).

• Subsidies (standardized based on age and income, so presumably not tied to the cost of insurance in a particular area) would be available to offset the cost of insurance for people with income in the 0-300 percent of federal poverty level range. Currently, ACA subsidies are available to those with income between 100-400 percent of federal poverty level. The 1332 recommendations note that nearly 40 percent of Oklahoma’s uninsured population has income under the poverty level, and are thus not able to take advantage of the ACA’s subsidies; the 1332 waiver would allow them access to affordable coverage (it’s worth noting that the ACA called for covering those residents via Medicaid; the reason they’re not eligible for assistance in Oklahoma is because the state has steadfastly refused to accept federal funding to expand Medicaid. In other words, it’s an Oklahoma decision, rather than an ACA design flaw, that has left those residents uninsured).

A few additional notes:

1. Much of what the state proposes to do encompasses what the state has declined to do so far: actively manage its insurance market and engage in aggressive outreach and education to draw in the uninsured. "It will be vital," we are told, "for the state to engage insurance brokers, agents and health plans, as well as community-based resources and community health centers, as these entities will be essential to assist consumers in accessing and understanding their coverage options -- particularly for uninsured populations."  Why has no one ever thought of this before?

2. On the insurer side, "If given flexibility, the Oklahoma Insurance Department will assume control of rate review and the rules surrounding the qualifications of participating health plans, which will allow the state to design mechanisms to advance the health system through plan-based strategies while implementing appropriate guardrails for insurers." With respect to those "guardrails," the report blithely assumes that federal funding will be available for reinsurance or high risk pools -- as it is in the AHCA.

3. As David Anderson has noted, shifting the range of subsidy eligibility from 100-400% of the Federal Poverty Level (where it now is in states that have refused the ACA Medicaid expansion) to 0-300% FPL is "a backdoor Medicaid expansion where the state does not need to pay either the current 5% or long run 10% of the Medicaid costs of the expansion population."  Clever!  But how will people with incomes below the poverty level -- or, for that matter, up to about 200% FPL -- deal with the out-of-pocket expenses entailed by AV 80% coverage, not to mention the high deductible (lower AV) option? That leads us to...

4. The state-funded HSAs, with respect to which the Oklahoma proposal is somewhat more specific than the Cassidy-Collins bill in spelling out the terms on which they can be used for out-of-pocket expenses as well as premiums.

Consumers can choose to use their health accounts to purchase more comprehensive coverage or opt for lesser coverage and more funds for first-dollar, out-of-pocket expenses available through their health account.

The key term here is "first-dollar coverage." Here's what Senator Bill Collins Cassidy [thanks, RS!]  had to say when discussing an earlier iteration of his ACA-remake bill, which included an option for cheap plans with coverage caps:

We think the key feature of this is first dollar coverage. First dollar coverage meaning that someone goes to the doctor and it is at no cost to the individual. Again, I’m coming from a setting where for 30 years I’ve worked with low- or middle-income people. And the most important thing to them is that they have first dollar coverage. They might not have $50 to spend on a copay.

It seems that what the low income HSA advocates have in mind -- at least those who make some effort to consider the target enrollee's needs -- is a kind of donut hole, where state funding (in the HSA) is available to cover expenses to a certain threshold -- after which a high deductible kicks in. This will work poorly for low income people with chronic conditions, who will blow through leftover HSA dollars.  As the report notes, "Oklahoma continues to experience high prevalence" of diabetes, hypertension, obesity, behavioral health and tobacco use. While the report proposes creating quality measures for how health plans handle chronic disease, linked to a shift toward value-based payments, it does not include measures to reduce out-of-pocket expenses for patients suffering from them.  The proposal does include financial incentives for those who maintain continuous coverage and engage in healthy behaviors.

5. Cutting subsidy eligibility off at 300% FPL, combined with increasing age-rating to 5:1 (that is, allowing plans to charge a 64 year-old five times as much as a 21 year-old) will render coverage unaffordable for an increased number of older prospective enrollees.

6. The baseline for federal funding for schemes implemented under 1332 waivers is what the state would have spent on subsidies in the state ACA marketplace. The proposal appears to assume that by projecting increased enrollment under the new scheme, the funding baseline can be raised:

The state also assumes that federal funds will be available for eligible but not enrolled populations; that is, funds for eligible individuals not currently accessing APTC and CSR will be made available to the state.

That leaves a lot of running room,  the Oklahoma marketplace has one of the poorest takeup rates among states.  According to Kaiser Family Foundation estimates as of March  31,2016, just 48% of Oklahomans eligible for premium subsidies were enrolled, versus a national average of 64%.

That last point underscores a strong argument for loosening up the ACA innovation waiver process: Implementing its own scheme, Oklahoma would try to enroll people, try to make the system work. The subtext of the report is that it hasn't tried to date. An appendix that rates the likely impact of each proposed reform rates the impact of relatively few of them as "high" -- but state rate review is among them, as is shifting enrollment to a state platform that would integrate applications for Medicaid and marketplace coverage -- and perhaps auto-enroll those who fail to qualify for Medicaid in a marketplace plan (a Cassidy-Collins provision rendered somewhat more specific by the apply-for-Medicaid trigger). Also rates high impact: the core plan redesigns, such as the HSA accounts and the shifted subsidy eligibility scale.

In my view, red states should be free to try their own means of extending healthcare access to their residents. The key word here is try: once the goal of insuring everyone is accepted, the battle over means can play out as rival models are implemented. More fundamental than disagreements over means is the battle over money: will the taxes that fund ACA benefits be repealed to fund tax cuts, or will ACA-level funding (or more) be deployed to extend access?

Polling evidence suggests that Trump has shifted a significant slice of the Republican base to the belief that government should work (and pay) to make health insurance universally available.  If that goal effectively becomes party policy, let them keep their shibboleths about HSAs and insurance choice for a while.

In the wake of the AHCA's spectacular first-round failure, I no longer think that Democrats need to negotiate with moderate Republicans on the basis of the Cassidy-Collins per se. I continue to think, though, that the ghost in the Cassidy-Collins machine -- a "superwaiver" solution -- remains at least a possible path to healthcare peace. That is, in exchange for loosening up ACA waiver criteria, Republicans stop sabotaging the ACA marketplace, stop trying to repeal its funding basis, and throw in some federal funding for state "stability" measures like reinsurance, such as they provided in the AHCA.  Then let Oklahoma go crazy. If a few states go all-in on such proposals, what we used to call Obamacare may truly take root across the land.