Health Reform Flexibility and the Wyden-Brown Waiver for State Innovation

President Obama this week endorsed legislation that would give states more flexibility in implementing the new health care law. The bill, co-sponsored by Senators Ron Wyden (D-OR) and Scott Brown (D-MA), and Mary Landrieu (D-LA), allows states to apply for a waiver to opt out of the major provisions of the Patient Protection and Affordable Care Act (PPACA) and implement their own reforms.

Most of the Wyden-Brown “waiver for state innovation” is already in the PPACA; the bill itself is actually just a small tweak to the language which moves up the effective date of the provision from 2017 to 2014. Moving up the availability date for the waiver means states can start implementing unique reforms immediately, instead of first having to invest time and resources in complying with the regulations in the PPACA. Senator Landrieu called the bill the “the ultimate repeal and replace” because it allows states who are dissatisfied with the ACA to design their own solution to the health care cost and coverage crisis.

Under Wyden-Brown, states could be exempt from the individual mandate to purchase health insurance (meaning you must have coverage or face a penalty), the state responsibility to design and launch a health insurance exchange (a new marketplace where consumers could shop for insurance and compare prices), the employer penalty payments for not providing coverage to employees, the minimum “essential benefit” standards for a health insurance policy, and the obligation to distribute federal subsidies for individuals and tax credits for small businesses to help purchase insurance. Instead, states could use the money for subsidies and tax credits to finance their own reforms.

Governor Mary Fallin (R-OK) said in Politico Pro that the waiver was not enough because it still had “some strings attached” and governors want “total flexibility.” The “strings” – the requirements to receive a waiver – are formidable. States must prove that their plan for health reform would result in cost and coverage levels comparable to what the ACA would achieve. Specifically, states must show that their plan will not increase the federal deficit, and that it will provide coverage that is at least as comprehensive and affordable as the PPACA plans (in terms of cost sharing and out-of-pocket spending caps) and cover as many people. The PPACA is expected to increase coverage from 83% to about 94% over 10 years.

Notably, Wyden-Brown does not impact any of the Medicaid provisions in the Affordable Care Act. This means that even if states apply for and receive a waiver, they are still responsible for maintaining their current levels of Medicaid eligibility until December 2013, and then expanding coverage to all individuals with incomes up to 133 percent of the federal poverty level in 2014. Though the federal government will finance 95 percent of Medicaid coverage for those who are newly eligible between 2014 and 2019, the expansion is still likely to present a cost burden for states. Currently, states are able to receive enhanced federal matching dollars for Medicaid, so long as they maintain income eligibility standards – but those funds dry up in June, and states must still maintain current eligibility levels. (This is sometimes referred to as Medicaid “maintenance of effort” or “MoE”).

Medicaid is a large and growing part of state budgets, and thus a significant concern for state leaders and a major reason some governors believe the Wyden-Brown waiver does not offer enough flexibility. Governor Sam Brownback (R-KS) told The Washington Post, “[the waiver] offers a little bit of flexibility, which I think is a positive thing…but it doesn’t change the overall objection to the bill.”

Some Republicans believe that the waiver does not relieve states from the PPACA’s mandates enough (Senator Orrin Hatch (R-UT) called the Wyden-Brown bill a “gimmick”). Some Democrats (for example, National Governors Association Chair and Washington Governor Chris Gregoire) believe that the waiver may appeal to many governors. The big winners if the waiver bill passes will likely be Democratic governors in states that are already starting to implement their own reforms, such as Vermont, which is moving toward a single payer system, and Oregon, which is working on substantial private and public health care delivery system reforms.

The Wyden-Brown waiver does not address all of the concerns state leaders have about the health care law, but it does provide greater flexibility in implementation. All states need practical health care solutions now and the flexibility necessary to implement successful solutions. The waiver is an example of the meaningful state and federal dialogue about flexibility important to achieving that goal.