After King v. Burwell, Republicans’ Goal Should Be Federalism on Steroids | Commentary

Posted April 16, 2015 at 10:00am

By Paul Howard and Yevgeniy Feyman There are three simple numbers Republicans in Congress need to keep their eyes on in the aftermath of the Supreme Court’s forthcoming decision in King v. Burwell, no matter what the outcome: 28, 60 and 67.  

28: The number of GOP governors in states with a federal health insurance exchange where a combined total of 6.5 million subsidy-eligible residents are at risk of losing those subsidies and their insurance if the plaintiffs win in King. The Department of Health and Human Service will offer these governors a quick fix: Simply deem the federal exchanges an “exchange established by the state” for the purpose of receiving federal subsidies. Without a Republicans alternative for these 28 governors, HHS’ escape hatch is going to look very attractive.  

60: The number of votes Republicans must rally to overcome a Democratic filibuster of legislation that might put the president in an awkward position — such as repealing the individual mandate in exchange for allowing the subsidies to continue to flow for an interim period.  

67: The number of votes Republicans need in the Senate to overcome a presidential veto — an impossible number. Republicans would have to be content to make Democrats take a hard vote on a full “repeal and replace” bill, losing the battle, but hope that it would set them up to win the war by maintaining the Senate and taking the White House in 2017.  

These simple political realities make immediate goals of repeal-replace bills impossible. Instead, Republicans need a “bridge”: A solution to get them through a potential win in King that doesn’t leave Republican governors out to dry, but still allows serious health care reform.  

One such bridge could come in the form of the so-called “State Innovation Waivers,” under section 1332 of the law, slated to begin in 2017. This little known element of Obamacare allows states to waive various parts of the law’s requirements including “essential health benefit” standards, requirements for exchanges, premium tax credits, and even the employer and individual mandates. In return, states receive a block grant of funding that would otherwise flow through Obamacare’s mechanisms.  

States could combine these waivers and existing Medicaid waivers (so-called “section 1115 waivers”) to receive a block grant of funding that would encompass an even larger population, allowing bigger reforms. (Standardizing the combination of these waivers could appeal to both red and blue states.)
The catch is the administration’s bait-and-switch approach to the Medicaid expansion. While HHS has promised flexibility, very little has been offered so far, making governors hesitant to propose ambitious reforms.  

The solution is simple: Congress should write flexibility directly into new legislation. Allow states to experiment with the flexibility of 1332 waivers, requiring “auto-approval” so long as reforms attain similar coverage and remain deficit neutral.  

Similarly, Congress should standardize Medicaid’s 1115 waiver system, allowing states to experiment with standardized approaches — including cost sharing and chronic disease management programs for Medicaid recipients — that would allow states to fast-track credible reform experiments, with stringent outcome reporting requirements.  

This approach lets states implement standardized Medicaid and exchange reforms, knowing that the administration can’t pull the rug out from under them.  

Policymakers should also consider taking the waivers to another level — offer the ability to wrap together other streams of federal funding, like supporting housing around drug treatment or prisoner re-entry programs. These mega-block grants would allow states to test more ambitious strategies for helping high risk, low-income residents. (House Ways and Means Chairman Paul Ryan, R-Wis., has proposed a similar approach, called Opportunity grants.)  

In a nutshell, Congress would call the president’s bluff. He’s said he’s in favor of state flexibility, allowing states to experiment. This would be an opportunity for the president to walk the walk on federalism.
Republicans have been hoping to replace Obamacare at a single stroke since 2010, either through one election or one Supreme Court case, only to be disappointed. The math is against them today as well. The advantage of a waiver/template approach that it works within the framework of the law, addresses conservatives’ core concerns and promotes entitlement reform along the way.  

This strategy could be implemented in one large bill, or tested via a series of amendments to legislation allowing federal exchange subsidies to flow until 2017 if the plaintiff’s win in King.  

Conservatives must acknowledge short-term realities while working toward long-term goals. While King won’t allow them to overturn the law, Obamacare’s own provisions allow a state-by-state repeal and replace strategy that helps set the stage for a larger health care debate in 2017.  

Paul Howard is a Manhattan Institute senior fellow and director of the Manhattan Institute’s Center for Medical Progress. Yevgeniy Feyman is a Manhattan Institute fellow and deputy director of the Manhattan Institute’s Center for Medical Progress.

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