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A possible path to give states more control over health insurance markets

Last week the Congressional Budget Office (CBO) released its analysis of the American Health Care Act (AHCA)—the House bill to repeal and replace Obamacare. While the headlines focused on the CBO’s estimate that 24 million people would lose coverage if the House bill passes, I was more interested to see what the analysis reveals about how Obamacare’s insurance regulations might be modified or repealed under the budget reconciliation process. After taking a closer look, the House bill may be missing an opportunity to put states back in control of their insurance markets.

To fully repeal Obamacare today, Republicans would need a filibuster-proof 60 vote majority in the Senate, a threshold they don’t come close to meeting.

Without the votes for full repeal, the strategy to repeal and replace the ACA starts with using the budget reconciliation process, a procedural maneuver that allows Senate Republicans to pass a bill with only a simple majority vote. Reconciliation, however, can only be used to pass provisions with a budgetary impact.

Thus, most observers agree reconciliation cannot be used to repeal the Obamacare insurance regulations that are destabilizing individual health insurance markets and driving up premiums in several states.

Nonetheless, the House bill does modify a few insurance regulations. It repeals the actuarial value requirement on insurers to cover at least 60 percent of the cost of covered benefits. It relaxes the limitation on varying premiums by age from 3:1 to 5:1. Also, it requires insurers to impose a one-year 30 percent surcharge on the premiums of people who enroll in coverage who have been uninsured for more than 63 days in the past year.

What’s going on here? How can these insurance regulations be justified to pass under reconciliation? If they can be justified, what about other regulations?

Republicans took a dry run at using the reconciliation process to fully repeal Obamacare back in 2015. At that time the “Byrd rule” stood in the way of various repeal strategies.

The Byrd rule restricts the use of reconciliation from adopting any “extraneous” provision that “does not produce a change in outlays or revenue.” Note the Byrd rule is federal law, not a rule of the Senate that can be swept aside when convenient.

At the time, the Senate parliamentarian, Elizabeth MacDonough, raised red flags that a full repeal would likely violate the Byrd rule and, in November 2015, she ruled that eliminating the individual and employer mandates violated the Byrd rule. Prior to passing in the Senate, a one-sentence amendment drafted by Sen. Ted Cruz to fully repeal Obamacare was ruled out of order by the parliamentarian.

In the end, Congress sent only a partial repeal bill to President Obama’s desk.

Today, MacDonough continues to be the parliamentarian. With this history, is it possible that House bill’s insurance regulations can pass through a reconciliation bill? Is it possible the House bill could go further and amend more regulations?

Really, all we know from the prior repeal effort is that repealing the individual and employer mandates would violate the Byrd rule. But there does not appear to be any record of why.

Without any cues from the parliamentarian, is there some way to distinguish the mandates from these other insurance regulations that might justify saving the regulations from a Byrd rule violation?

Here’s the most obvious distinction. The mandates directly regulate the behavior of individuals and employers, whereas the insurance regulations directly regulate the pricing of insurance premiums. Influencing premium prices has a stronger nexus with federal budget outlays and revenues. Federal subsidies for tax credits under Obamacare are directly tied to premium prices, which, as the CBO explains, is part of why “total federal subsidies for nongroup health insurance would be significantly smaller under the legislation than under current law ….” Furthermore, any change to the price of coverage in the group market would directly impact the amount of health care costs employers exclude from taxes.

The CBO analysis also draws a clear link between the reductions in coverage in the individual market and the decline in total federal subsidies for individual health insurance. The repeal of the mandate penalties and the regulations are both responsible for this decline in coverage, according to the CBO.

Because the parliamentarian has already ruled that repealing the mandates violates the Byrd rule under reconciliation, this link between coverage levels and the federal subsidies would likely not be a strong enough connection to survive the Byrd rule. Maybe that’s because there are too many links in the chain.  Repealing the mandate penalties and regulations changes consumer behavior. This behavioral change leads to reduced coverage levels. Reduced coverage leads to a reduction in federal subsidies.

The parliamentarian may see a more a direct connection between the insurance regulation provisions and federal subsidies because they also impact federal subsidies by regulating premium prices.

If the insurance regulation provisions do survive reconciliation because they directly impact premiums or because the CBO ties the coverage changes to a drop in federal subsidies, then why doesn’t the House bill amend more regulations? In particular, why not amend or repeal the essential health benefit requirement that forces a great many people into a more generous, pricier benefit set? If age-bands can be relaxed, then all rating requirements should be open to amendment.

Finally, what about the guaranteed issue requirement that forces insurers to issue coverage to any applicant regardless of health status? This is the requirement responsible for the most severe spikes in premiums because it allows people to wait until they get sick before buying coverage. Though this regulation impacts premiums, it might not be viewed as directly impacting the way premiums are priced because it does not regulate the design of the health plan. It just mandates that the coverage must be sold to any applicant.

There might be another way to give states the flexibility they need to address problems with the guaranteed issue and other regulations through reconciliation. Give states the opportunity to waive Obamacare’s insurance regulations through the new state health care programs funded by the Patient and State Stability Fund.

The House bill establishes a Patient and State Stability Fund to, according to the House Energy and Commerce Committee, provide “a solution to help repair the insurance market damaged by Obamacare and provide more affordable coverage options to consumers.” The fund would provide grants to help high risk individuals to enroll in individual coverage, incentivize insurers to stay in the market, reduce the cost of providing coverage to high risk individuals, increase health insurance options, promote preventive services, and reduce out-of-pocket costs.

These are all worthy goals, but Obamacare’s insurance regulations create a possibly insurmountable barrier to accomplishing them without more flexibility. Restructuring the program to also provide funding to states to administer different regulatory approaches in combination with other market stabilizing mechanisms, like high risk pools or reinsurance, would give states the tools and funding they need to restore stability to their individual health insurance markets. Receipt of funding would be contingent on states delivering an application that explains how the funding and regulatory relief work together to stabilize the market.

Because the waivers from federal insurance regulations would be directly tied and essential to the success of this new federally-funded state health care program, the waivers would arguably not be an extraneous matter to the federal outlay for the program. This approach to regulatory relief may stand a stronger chance of surviving reconciliation than the insurance regulation provisions currently in the House bill. States really do need this regulatory relief to make effective use of the federal market stabilization funds.

This approach might also be the most politically feasible approach. It hands real power over insurance markets back to the states, which addresses one of the main criticisms coming from the right. Yet, it also avoids repealing some of the more popular federal insurance market regulations. Instead, it opens the door for states to experiment.

The ability for states to experiment may be the only way to modify some of the more popular regulations that are disrupting markets. States facing the most market volatility might actually have the political will to challenge the requirement on employers to make coverage available to adult children up to age 26. It’s a very popular requirement, but it’s also a key reason younger and healthier people are not enrolling in the individual market. The federal government will never be able to face that reality. A state desperate to save their individual insurance market can.

Maybe this approach fails under reconciliation, but it sure is worth a shot.

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