Last week, I outlined how a white paper Sen. Bill Cassidy (R-LA) released essentially advocated for Obamacare on steroids. That plan would keep the law’s most expensive (and onerous) federal insurance requirements, while calling for more taxpayer dollars to make that expensive coverage more “affordable.”
Unfortunately, Cassidy also would extend this highly regulatory approach beyond mere white papers and into legislation. A recently disclosed copy of a revised Graham-Cassidy bill—originally developed by Cassidy and Sen. Lindsey Graham (R-SC) last fall—imposes two dozen new requirements on states. These requirements would undermine the bill’s supposed goal of “state flexibility,” and could lead to a regime more onerous and expensive than Obamacare itself.
18 New ‘Adequate and Affordable’ Coverage Rules
Language beginning on the bottom of page 12 contains new restrictions on states that want to receive the $1.176 trillion in block-grant funding that the Graham-Cassidy bill offers. Whereas last fall’s version required states to “maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” the new version defines “adequate” coverage in minute and excruciating detail.
Specifically, that coverage must:
- Include four categories of basic services defined in the State Children’s Health Insurance Program (SCHIP) statute:
- Inpatient and outpatient hospital services;
- Physicians’ surgical and medical services;
- Laboratory and X-ray services, and
- Well-baby and well-child care, including age-appropriate immunizations;
- Include three categories of additional services also defined in the SCHIP statute:
- Coverage of prescription drugs;
- Vision services; and
- Hearing services;
- Include two other categories of services as defined by Obamacare:
- Mental health and substance use disorder services, including behavioral health treatment; and
- Rehabilitative and habilitative services and devices;
- Comply with actuarial value standards set by the SCHIP statute:
- Cover at least 70 percent of estimated health expenses for the average consumer; and
- Comply with requirements included in eight separate sections of the Public Health Service Act, as amended by Obamacare:
- Section 2701—Rating premiums only based on age (with older applicants charged no more than three times younger applicants), family size, geography, and tobacco use;
- Section 2702—Required acceptance for every individual or employer who applies for coverage (i.e., guaranteed issue);
- Section 2703—Guaranteed renewability of coverage;
- Section 2704—Prohibition on pre-existing condition exclusions;
- Section 2705—Prohibition on discriminating against individuals based on health status;
- Section 2708—Prohibition on excessive waiting periods;
- Section 2711—Prohibition on annual or lifetime limits; and
- Section 2713—Requiring first-dollar coverage of preventive services without cost-sharing (i.e., deductibles and co-payments).
As noted above, “adequate and affordable health insurance coverage” would include many of Obamacare’s insurance requirements, and in at least one way would exceed them. Whereas Section 1302(d) of Obamacare requires selling insurance with an actuarial value—that is, the percentage of medical expenses paid for the average individual—of at least 60 percent, the revised Graham-Cassidy would require “adequate and affordable” coverage with an actuarial value of at least 70 percent.
If asked, Graham and Cassidy might state that these requirements would only apply to a certain subset of the population. After all, the revised bill text indicates that each state “shall ensure access to adequate and affordable health insurance coverage (as defined in clause (ii))”—the clause referring to the 18 separate requirements listed above—“for [high-risk individuals].” The bill lists the brackets in the original, which might indicate that Cassidy’s office intends to apply these 18 separate coverage requirements only to plans that high-risk persons purchase.
But the bill nowhere defines a “high-risk individual”—nor, for that matter, does it define the “affordable” part of “adequate and affordable health coverage”—continuing a pattern of giving excessive discretion to federal officials. I noted last fall that the prior version of Graham-Cassidy gave federal bureaucrats at the Centers for Medicare and Medicaid Services (CMS) far too much power to determine the funding formula for doling out the nearly $1.2 trillion in block grant funds.
Thankfully, the new draft removes the “population adjustment factor” allowing CMS to rewrite the block grant formula unilaterally. But even as it took away CMS’ power to alter the funding formula, new language on page 15 of the revised draft allows CMS to cancel states’ block grant funds for “substantial noncompliance.” That provision, coupled with the revised bill’s lack of definition regarding “affordable” coverage and “high-risk individual” provides a future Democratic administration with two clear ways to hijack the block grant program.
For instance, a new administration could define “high-risk individual” so broadly that it would apply to virtually all Americans, subjecting them to the 18 costly coverage requirements. A new administration could also define “affordable” in such a manner—for instance, premiums may not exceed 5 percent of an individual’s income—that states would have to subsidize insurance with sizable amounts of state funds, in addition to the federal dollars included in the block grant. Any state failing to comply with these edicts could see its entire block grant yanked for “substantial noncompliance” with the bureaucratically imposed guidelines.
It seems paradoxical to assert that a bill can be both too prescriptive, imposing far too many requirements on states that undermine the supposed goal of “state flexibility,” and too vague, giving vast amounts of authority to federal bureaucrats. Yet somehow the section on “adequate and affordable health coverage” manages to do both.
Two New Required Uses of Block-Grant Funds
The prior Graham-Cassidy bill required states to spend at least 50 percent of their block grant funds assisting individuals with incomes between 50 and 300 percent of the federal poverty level. (In 2018, the federal poverty level stands at $25,100 for a family of four.) The revised bill includes two new requirements, included on page 19 of the text: States must spend at least 30 percent of block-grant funds on risk mitigation programs, ranging from high-risk pools to reinsurance mechanisms or other such options. States must also spend at least 50 percent of the funds on subsidizing private health insurance coverage.
Supporters of the bill would argue that these supposed “guardrails” will prevent states from subsidizing Medicaid coverage, or creating some other government-run health program. But as I noted last week, Obamacare has its own “guardrails” regarding state waivers, which undermine any attempt to deregulate insurance markets.
By adding these new “guardrails,” Graham-Cassidy would essentially replicate Obamacare, albeit with slightly different policy objectives: “The Cassidy plan would give states the ‘flexibility’ to do what Bill Cassidy wants them to do, and only what Bill Cassidy wants them to do. That isn’t flexibility at all.”
Block Grant Reductions with Multiple Risk Pools
On Page 31, the bill includes new language requiring a reduction in block-grant funds, by a percentage not specified, for states electing to create multiple risk pools. Under current law, Section 1312(c) of Obamacare requires insurers to place all individual insurance market enrollees—whether they purchase coverage through the exchange or not—in a single risk pool.
States might want to create multiple risk pools as a way to lower premiums for healthy individuals, by putting high-risk individuals with chronic or costly conditions into a separate, more heavily subsidized, risk pool, similar to the high-risk pools that existed prior to Obamacare.
If a state elects to choose multiple risk pools and uses a “substantial portion” of its block grant to subsidize insurance with an actuarial value of under 50 percent, then the state would see an unspecified reduction in its block grant. This language contains many of the flaws of the other provisions described above: It nowhere defines what comprises a “substantial portion” of the block grant, and penalizes states that may choose to create multiple risk pools and subsidize only catastrophic insurance coverage, thus belying Graham-Cassidy’s promise of “state flexibility.”
3 New Requirements for State Waivers
The revised Graham-Cassidy text moves and alters language regarding state waivers of Obamacare’s federal insurance requirements, and in so doing makes three substantive changes. (The original language started in the middle of page 143 of the bill; the new language begins on the top of page 42 of the revised bill.)
First, and perhaps most disturbingly, the revised bill requires the Department of Health and Human Services to waive Obamacare’s insurance requirements for a state only if “such state establishes an equivalent requirement applicable to such coverage in such state.” Taken literally, this provision could mean that states could “opt-out” of Obamacare’s federal requirements if and only if they enshrine those exact same requirements in state law—rendering any supposed “flexibility” under Graham-Cassidy completely nonexistent.
Graham and Cassidy may not have meant to craft language with such a literal interpretation. They may mean to say, for instance, that a state can waive out of Obamacare’s age-rating requirements (which prohibit insurers from charging older people more than three times what they charge younger people) if they establish a more permissive regime—for instance, five-to-one age rating—on the state level.
But taken literally, that’s not what the current bill text says. That vague language raises serious questions about the authors’ intent, and why they chose such unclear, and arguably sloppy, bill language.
Second, the section imposes two new requirements on states selecting multiple risk pools. As noted above, those states would have to comply with the 18 new requirements regarding “adequate and affordable” health coverage, and states creating multiple risk pools could see their block grant reduced as a result.
In addition, however, states must also guarantee that insurers offering coverage in one risk pool offer coverage in all of them. Moreover, premiums charged “by a health insurance issuer for the same health coverage offered in different risk pools in the state [may] not vary by more than 3 to 1.”
The first requirement echoes the Consumer Freedom Amendment offered by Sen. Ted Cruz (R-TX) last year. That amendment allowed insurers to offer plans that did not comply with Obamacare’s requirements, so long as they continued to offer one Obamacare-compliant plan. The second requirement would effectively limit the extent to which insurers could charge individuals more on the basis of pre-existing conditions or health status.
Two Dozen (More) Reasons for State Concern
Both individually and collectively, these two dozen new requirements inserted into the most recent version of Graham-Cassidy present problems for conservatives. The myriad requirements would sharply limit the bill’s ability to deliver lower premiums to consumers—one major goal of “repeal-and-replace” legislation.
More broadly, though, the revised bill drifts further away from any semblance of conservative objectives. While Graham-Cassidy purports to provide more flexibility to states, the revised bill would instead ensnare them in numerous requirements that would impede any attempt at innovation.
Like the proverbial Lilliputians who attempted to tie down Gulliver, the new bill looks to rob states of their ability to manage their own insurance markets and lower premiums for residents, one federal requirement at a time.