Returning Health Care Power to the States

Sep 21, 2016

By Rea S. Hederman Jr. and Dennis G. Smith


When Congress passed the Patient Protection and Affordable Care Act (ACA), it transferred significant regulatory power from the states and placed the health insurance coverage of millions of Americans under the direct authority of the federal government. But Congress also provided states the power to innovate and improve on the ACA through a statutory provision, Section 1332, which provides states with power over some of the most controversial parts of the law.

Beginning in 2017, for example, states may choose to waive “all or any requirements” of the ACA’s new provisions related to the federal tax code.

Section 1332 implicitly recognizes that states could do a better job meeting the objectives of the ACA than the federal government. Congress intended for states to innovate and experiment using Section 1332, and the ACA expressly grants states latitude to pursue alternative plans: “[a] State may apply to the Secretary for the waiver of any or all of the requirements…with respect to health insurance coverage…” (emphasis added). 

To take advantage of Section 1332’s “Waiver for State Innovation,” alternative state plans must meet four conditions:

  1. Coverage must be at least as comprehensive as the Essential Health Benefits package and offered through exchanges;
  2. Provide coverage and cost-sharing protections against excessive out-of-pocket spending for individuals;
  3. Provide coverage to at least a comparable number of residents; and
  4. Will not increase the federal deficit.

State Innovation Waivers may be used for states to pursue a range of reforms. Some states, like Ohio, have already enacted laws encouraging broad innovation and experimentation. States also could use Section 1332 to take smaller steps to target specific problems, such as the so-called “Family Glitch,” or to resolve other inequities by realigning conflicting income and standards methodologies. The waiver process could also enable states to eliminate the individual mandate, develop better ways to sell health insurance, terminate the federal statutory prescription of metal tiers and coverage benefits, and promote market competition by giving individuals more choices to meet their needs.

Unfortunately, the Obama Administration released guidance in December 2015 that discourages states from pursuing State Innovation Waivers. The administration’s guidance conflicts in part with the ACA, complicates waiver approval, and imposes arbitrary restrictions on states. 

For states to innovate in health care, they need commitment from the federal government to work cooperatively with state reform efforts, and new guidance that frees states from federal overreach so that they can effectively focus on the needs of their residents.

Click here to download the Policy Brief: Returning Health Care Power to the States

Click here to download the full Policy Report.