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Obama Backs Earlier State Opt-Out for Some Reform Mandates

By Stephen Miller  2/28/2011
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President Barack Obama said on Feb. 28, 2011, that he supports amending the 2010 Patient Protection and Affordable Care Act (PPACA) to allow states to withdraw from some of the law’s regulatory mandates in 2014 rather than in 2017—provided they put in place an alternative means to meet the reform law’s coverage and cost objectives.

Speaking at the National Governors Association 2011 Winter Meeting in Washington, D.C., Obama said for the first time that he backs the bipartisan Empowering States to Innovate Act, sponsored by Sens. Ron Wyden, D-Oregon, Scott Brown, R-Massachusetts, and Mary Landrieu, D-Louisiana.

"This recognition—that states need flexibility to tailor their approach to their unique needs—is why part of the law says that, beginning in 2017, if you can come up with a better system for your state to provide coverage of the same quality and affordability as the Affordable Care Act, you can take that route instead," the president told the governors, some of whom have strongly criticized the regulatory burdens that the PPACA imposes on the states.

Under the proposed legislation, he told the governors, beginning in 2014, "If your state can create a plan that covers as many people as affordably and comprehensively as the Affordable Care Act does—without increasing the deficit—you can implement that plan, and we’ll work with you to do it."

More Flexibility for States

The year 2014, when the Empowering States to Innovate Act would allow states to establish independent health insurance regulatory models, is the same year that federally mandated, state-run health care exchanges will start to become available. In addition, it is the year in which the PPACA's central mandates are scheduled to take effect—including the requirements that most individuals obtain health insurance and that employers with 50 or more employees offer health coverage that meets the PPACA's specifications or pay a penalty.

However, states would still be required to ensure that health insurance coverage meets certain criteria, including certifying that state-regulated policies would cover at least as many of their residents as the policies the federal government deems acceptable under the PPACA.

Under the proposed legislation, governors would be able to apply for "state innovation waivers" to implement reforms that:

Provide insurance coverage that is at least as comprehensive as the policies offered through the exchanges.

Make coverage at least as affordable as it would have been through the exchanges.

Provide coverage to at least as many residents as the PPACA would have provided.

Do not increase the federal deficit.

State reforms could take many forms. Among the models that states could adopt are:

Linking tax credits for small businesses with tax credits for low-income families.

Enrolling people in health plans automatically.

Offering alternative health plan options to increase competition and provide consumers with additional choices.

Providing a broader choice of benefits packages for individuals and small businesses.

Allowing large businesses to purchase health insurance through the exchanges.

In addition, the proposed law would allow states to submit a single application that includes Medicaid waiver requests that could, for example, provide those eligible for Medicaid the choice of enrolling in exchange-based health plans.

"Those models represent innovations that have been advanced by Democrats and Republicans in states and here in Washington," said Secretary of Health and Human Services Kathleen Sebelius in a statement. "And these models give residents of these states at least as much assistance and protection as the provisions of the Affordable Care Act."

Other Mandates Would Remain

Despite additional flexibility in the areas noted above, the proposed law would maintain state requirements under the PPACA intended to ensure that insurance companies:

Don’t impose lifetime limits on the dollar amount they will spend on health benefits or drop coverage for those who become ill or disabled.

Offer young adults without access to job-based coverage the option of remaining on their parent’s plan until their 26th birthday.

Cover all recommended preventive services without cost sharing.

Allow patients to choose their own doctor in their network.

Spend at least 80 percent of premium dollars on health care, rather than executive salaries and administrative costs. 

"By maintaining these important basic protections for all Americans—no matter which state is their home—we will combine the benefits of a national movement to improve health and health care with the local innovations that have always made our nation great," said Sebelius.

A Contrary View

However, when the Empowering States to Innovate Act was introduced in November 2010, policy analyst Peter Suderman commented, "As modifications go, it’s relatively minor. … The supposed flexibility the opt-out provision gives the states to innovate is fairly limited. Theoretically, they can get out of the mandate. But to do so, they have to submit a proposal that is judged to cover the same number of people, for the same cost (or less), with the same benefit and coverage levels as mandated in the law."

Moreover, if the bill were passed, states might be freer to experiment with options more comprehensive than under the PPACA, such as government-run "single-payer" programs, in 2014 rather than waiting until 2017. But "proposals that rely on higher levels of cost-sharing [or] on increased use of catastrophic insurance…are less likely to pass muster" under the opt-out provision, wrote Suderman.

Stephen Miller, CEBS, is an online editor/manager for SHRM. 

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