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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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How to Fix the Affordable Care Act

Like almost every major piece of legislation, the Affordable Care Act (ACA) needed fixing virtually before the statute’s ink was dry. Any bill designed to transform one-sixth of the economy was bound to have—let us say—a few rough edges.

Stuart Butler, PhD

As legislation rolls out, it’s common to make adjustments. But amending the ACA poses enormous challenges. For one thing, the deeply partisan divide over the reform itself makes even a “technical corrections bill” impossible for now. However, it’s widely believed that the needed changes must go well beyond that. Republicans want outright repeal, not refinement, or, at the very least, sweeping change along the lines of legislation just introduced by Senator Tom Coburn. His bill would change fundamentally the tax treatment of health insurance, assure continuous coverage for working families, and allow Medicaid recipients to instead opt for a refundable tax credit to buy private coverage.

Meanwhile, the White House has engineered structural changes to address such things as disruptions posed by the ACA’s insurance coverage requirements. Not wishing to open a Pandora’s box by seeking fixes in Congress, the Obama Administration has resorted to an unprecedented use of administrative rules that amount to major amendments of the statute—so far, surprisingly, without a court challenge.

But as I’ve noted before, the ACA is inherently unstable. Pressures likely will build and have to be accommodated. The “back office” features of the new insurance products and the exchanges themselves still have to be tested. If the sign-up rate among younger, healthier Americans continues to lag, that will cause possibly destabilizing premium hikes next year. And it is still not clear what the ACA’s total cost or its net effect on uninsurance will be.

Flexibility for States

The political, technical, and financial uncertainties underscore the importance of permitting much greater flexibility for states, not just as a political safety valve, but as a conscious strategy to facilitate adaptation of the ACA and to foster greater cost control.

If we are to see major adjustments to the ACA, we will need to permit politically diverse states to explore quite different combinations of Medicaid, private insurance, subsidies, and insurance rules. A decade ago, Henry Aaron, PhD, of the Brookings Institution and I argued for a radical state-led approach to achieving wider coverage amid the political standoff of that time. We argued that it was a vain hope that both sides would somehow bury the political hatchet and agree on a common approach to health reform. It would be more practical and politically feasible, we wrote, to imagine a majority in Congress agreeing to legislative waivers for groups of liberal and conservative states to pursue their own proposals for increasing coverage within broadly agreed goals and principles. That proposal generated legislation in 2007 with a remarkable range of ideological support in both houses of Congress.

Although Henry and I disagree today about the ACA, I would argue that in today’s political environment the only way to envisage adjustment and amendment of the ACA is through a similar state-based approach, in which ideologically diverse approaches are permitted at the state level and compared for their effectiveness. Both parties in Congress would see an advantage in agreeing to that, both to relieve public pressure and test their own approaches to further reform.

Moreover, an effective long-term strategy to restrain health costs will require rethinking of the way in which the 3 major sectors—private, state, and federal—can cooperate, again with states taking the lead. This is not only because of political gridlock, but also because cost constraint requires continuous experimentation and adaptation.

A problem today, however, is that while each sector can have a profound effect on the costs of other sectors (for instance, state licensure influences both private and federal costs), there is usually little political or financial incentive for one sector to pursue difficult cost reduction strategies if other sectors are the primary beneficiaries. For instance, a scope of practice change by a state might yield considerable private sector and Medicare savings, but could be politically painful for state leaders. Meanwhile, an adjustment in the ACA’s exchange rules could benefit private companies and the states but provide little direct payoff to the White House.

To change this frustrating dynamic, Len Nichols, PhD, of George Mason University, David Kendall of Third Way, and I argue for a “gain sharing” approach that would encourage states to take the lead in convening local public and private stakeholders to propose redesigns of regulations and programs within their borders, including federal programs, that could slow future total private and public costs.

A State-Led Strategy

This state-led strategy involves 3 basic steps.

First, there would need to be a default baseline for total federal, state, and private spending within each state against which future spending could be compared, much as welfare reform (the Personal Responsibility and Work Opportunity Reconciliation Act of 1996) was established to calculate savings from state action. With modest improvements and additional resources, the Centers for Medicare and Medicaid Services’ state level estimates would be sufficient as a baseline.

Second, a state-led commission of stakeholders would negotiate with Washington for federal administrative and possibly statutory changes that would apply within the state to achieve the stakeholder proposal developed at the state level.

Third, the state-federal negotiation would also focus on how savings would be shared between each sector within the state, including the federal government. The agreement would establish procedures for identifying and calculating savings.

States already seem willing to take the initiative in advancing cost control. For instance, just this January, Nebraska launched a Medicaid medical home pilot that grew out of a state-sponsored council of private and public stakeholders. Virginia also has a vibrant public-private stakeholder center to promote innovation and efficiency. Maryland has for for many years used a state commission, with several private stakeholders, to negotiate state-wide regulations and initiatives in an effort to slow costs and boost efficiency. And the first recommendation of the State Health Care Cost Containment Commission calls on states to create alliances of stakeholders to lead change.

In the current political standoff in Washington, there seems little prospect of Congress agreeing to structural changes in the ACA, even if problems mount and costs rise. It is time to see state-led innovation and adaptation as not just a political way out for both parties but also as the best way to achieve continuous health reform.

About the author: Stuart M. Butler, PhD, is Director of the Center for Policy Innovation at the Heritage Foundation in Washington, DC, where he focuses on developing new policy ideas. Previously he served as Vice President for Domestic and Economic Policy Studies. He is also an Adjunct Professor at Georgetown University’s Graduate School.
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