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Crazy waivers: the Senate bill invites states to gut important health insurance rules

Under a little-noticed provision of the Senate bill, Secretary of Health and Human Services Tom Price  (pictured) would have to rubber-stamp virtually any state health-care “reform”
Under a little-noticed provision of the Senate bill, Secretary of Health and Human Services Tom Price would have to rubber-stamp virtually any state health-care “reform”
NurPhoto / Getty

With the release of the Better Care Reconciliation Act, the Senate has finally shown its cards. Much will and should be made of how the bill, if adopted, would deprive millions of people of health insurance in order to finance huge tax cuts for the wealthy.

But the bill is troubling in another respect: It affords states the immense, hidden power to eliminate some of the Affordable Care Act’s most critical financial protections.

How does it accomplish this? Nestled in Obamacare is a provision allowing states to seek waivers from some of the law’s most important rules, including rules requiring insurers to cover certain “essential” health benefits and imposing annual caps on out-of-pocket spending. The point was to allow states to experiment with alternative approaches to achieving the goals of health reform: improving coverage and lowering costs.

That’s why the waivers haven’t been given out like candy. Under the Affordable Care Act, a state has to show that its alternative plan would allow it to cover as many people, with coverage as generous, without increasing federal spending. Only if a state met that demanding triple standard could it take the money allocated for the ACA and chart its own course.

The Senate bill requires the secretary of health and human services to say yes to state experimentation of virtually any kind

The Senate bill retains this waiver provision — but removes the guardrails that ensured state-based alternatives would offer strong coverage. Under the Senate bill, to get a waiver, a state doesn’t have to demonstrate anything about coverage. Instead, it just has to show that the plan won’t “increase the federal deficit.” Once a state makes that showing, the bill is explicit: The secretary of health and human services “shall” approve the plan.

Not “may” approve the plan — “shall.” This is a crucial legal distinction. The Supreme Court has squarely held that this sort of mandatory language means what it says: If the condition is satisfied, the secretary has no choice but to give his approval.

That could lead to some bizarre consequences. What’s stopping a state from submitting a half-baked plan for a high-risk pool that will lead millions of people to lose coverage? Or, for that matter, from using Obamacare money to fund public schools or affordable housing? According to the Senate bill as written, the secretary would have to approve plans like that so long as they don’t increase the federal deficit.

True, the bill says that a state must submit a “description” of how its plan would “take the place” of the rules it waives, including the “alternative means” that the plan will use to increase access to coverage, reduce premiums, and increase enrollment. But the description has no legal bearing on whether to grant the waiver. Again, if the state’s plan doesn’t increase the deficit, the secretary has to approve it. Period.

The bill lets governors concoct new health care plans, without involving legislatures

The bill goes further to grease the wheels for waivers. Under Obamacare, a state had to pass a law in support of the proposed waiver, which meant legislatures had to give their approval before the state could experiment with novel approaches to health insurance. The Senate bill would cut legislatures out of the equation. Governors, together with their insurance commissioners, could devise new health care plans on their own. (They would only have to “certify” that they have the authority to implement the plan — a low hurdle.) The federal government must then review the waiver request on an expedited basis.

And once a waiver is granted, the Senate bill says that the federal government cannot terminate the waiver, no matter what. It is hard to overstate how unusual — even unique — this is. When the federal government offers money to states, it places conditions on how the states are to use that money — and reserves the right to cut off the states if they fail to adhere to those conditions. The cutoff threat is essential to prevent state abuse of federal funds.

The Senate bill removes that threat. It says that a waiver “may not be cancelled” before its expiration. If state officials blow the Obamacare money on cocaine and hookers, there’s apparently nothing the federal government can do about it. At the same time, the bill expands the duration of waivers from five years to eight years. The upshot, then, is that the next president won’t be able to renegotiate any waivers granted during the Trump administration, no matter how badly a given state might have abused its waiver.

So any state that wants a waiver can get one; federal funding can be used for virtually any purpose; and the federal government has no power to discipline states that abuse the federal money.

Which parts of the Affordable Care Act could be waived? The Senate bill would retain some limits. It wouldn’t, for example, allow states to waive the prohibition on discriminating on the basis of preexisting conditions. But it would allow states to remove caps on out-of-pocket spending for exchange plans. Under Obamacare, an individual with insurance can be asked to pay a maximum of $7,150 out of pocket for her health care; for families, the cap is $14,300. If those caps are eliminated, the sky is the limit on what you might be asked to pay.

Goodbye, essential benefits?

What’s more, states could exempt themselves entirely from the rule requiring coverage of the essential health benefits — a change from the bill the House enacted last month, which required states to identify an alternative list of essential benefits. Without that rule in place, many insurers on the exchanges are likely to drop their coverage for maternity services and for the treatment of substance use disorders, among other benefits.

Waiving the essential health benefits rule won’t directly affect most of the health plans that people get as a fringe benefit of employment. Under Obamacare, the rule doesn’t apply to health plans from large employers. But a waiver would have enormous indirect effects on employer-sponsored coverage.

Here’s why: In one of its most popular provisions, the Affordable Care Act prohibited all health plans, including those offered by employers, from imposing annual and lifetime limits on coverage. These limits were common before the advent of health reform, and had especially harsh consequences for people, including children, with debilitating chronic illnesses, as Vox’s Sarah Kliff has movingly documented.

The ban on annual and lifetime limits was thus a boon even for the 159 million people who get their coverage through their employers. But the waivers contemplated under the Senate bill could wipe out the ban on such limits. Under the Affordable Care Act, the ban on lifetime and annual limits applies only to those benefits that are considered “essential.” If a state gets a waiver saying that no benefits would be considered essential — which was the status quo prior to Obamacare — insurers could impose lifetime and annual limits on all services.

If one state weakens health insurance rules, that could have ripple effects in every state

It gets worse. In general, federal law attempts to create a single, nationwide set of rules for large employers that offer health coverage. That’s why, as Matt Fiedler at Brookings has pointed out, “current regulations and guidance permit large employer plans to apply any state’s definition of essential health benefits for the purposes of determining the scope of the ban on annual and lifetime limits.”

So imagine that Texas were to get a waiver from the essential health benefits rule. Employers in every state could then adopt Texas’s definition of what counts as essential — which is to say, nothing. A single state could thus wipe out annual and lifetime limits across the whole country, making a mockery of federalism, where each state is supposed to be able to make decisions for itself.

Although the Trump administration could tighten its regulations to mean that Texas’s waiver would apply only to employers in Texas, it isn’t likely to do so. Even if it did, waivers would apply within any state that chose to grant them — meaning that the Senate’s bill would still expose millions of families that get coverage through their employers to financial catastrophe.

In short, the waivers available under the Senate bill are breathtaking in scope: not just “big waiver,” as some lawyers call the emerging system that lets states opt out of government rules, but “waiver unlimited.” It’s not clear that the Senate appreciates what it’s doing; indeed, it’s not even clear that rules governing waivers can be included in a reconciliation bill.

But if the Senate parliamentarian decides that they can be included, and the Better Care Reconciliation Act of 2017 becomes law, its waivers will be a backdoor method for undoing some of Obamacare’s most popular and significant protections.

Nicholas Bagley is a professor at the University of Michigan Law School. Find him on Twitter @nicholas_bagley.


The Big Idea is Vox’s home for smart discussion of the most important issues and ideas in politics, science, and culture — typically by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.

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