Ahead of the National Governors Association meeting this weekend, Secretary Sebelius released a letter responding to previous correspondence from Republican Governors requesting additional flexibility in implementing the health law. Unfortunately, however, the Secretary’s response was largely a non-response, avoiding the main issues the governors raised:
Operation of Exchanges
Governors’ Request: “Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products.”
Sebelius’ Response: “In implementing their exchanges, states have the option to allow all insurers to participate in the exchanges (the Utah model), or they can be more active purchasers in shaping available choices (the Massachusetts model).”
Translation: While the Secretary’s letter sounds like HHS will give states some flexibility to manage their exchanges, the proof will be in the pudding – namely the specific regulations to be released delineating state exchange requirements. More broadly though, it’s an open question whether states will receive the “complete flexibility” requested by the governors – or whether HHS bureaucrats will layer on more Washington mandates for the state-based exchanges to comply with, just as the law itself did.
Essential Health Benefits
Governors’ Request: “Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.”
Sebelius’ Response: “All plans in the individual and small group markets – inside or outside of the exchanges – will provide essential health benefits, which, by law, will be modeled after what a typical employer currently provides today in the private sector. But the law and how states implement it allow a diversity of plan types and benefit designs in exchanges, and states continue to have the option to require coverage of specific, additional benefits.”
Translation: Governors’ request denied. The Secretary’s letter talks about benefits packages being prescribed “by law,” but conveniently omits who will be doing the prescribing. Section 1302(b)(1) of the statute couldn’t be clearer about who will decide the scope of the benefits package: “The Secretary shall define the essential health benefits” necessary to comply with the law’s individual mandate. The other key word in the Secretary’s letter when it comes to benefit packages is “additional:” States can EXCEED the Washington-imposed benefit standards, but they cannot waive them, no matter how high premiums will rise. (The richer benefit packages will raise premiums for individual insurance by as much as 30 percent on average, according to the Congressional Budget Office.) This “flexibility” is in reality a one-way street to higher premiums and health costs for states and families alike.
Health Savings Accounts
Governors’ Request: “Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs).”
Sebelius’ Response: “The cost sharing limits required by the essential health benefits package mirror the current out-of-pocket maximum for HSAs under the Internal Revenue Code.”
Translation: Substantively speaking, a non-answer. First, the essential health benefits package does contain new restrictions on deductibles and cost-sharing that will prevent at least some current HSA plans from being offered. More importantly, the law does not specify that cash contributions made to an HSA will be counted towards the minimum federal requirements under the new actuarial value standard. Section 1302(d) of the statute states very clearly that those parameters will be defined “under regulations issued by the Secretary.” In other words, it’s not states that will determine whether they will be able to offer HSA coverage – it’s the Secretary herself. And the Secretary didn’t answer whether HHS will give all HSA plans a “safe harbor” during the regulatory process.
Governors’ Request: “Provide blanket discretion to individual states if they chose [sic] to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.”
Sebelius’ Response: “The Affordable Care Act expands and simplifies Medicaid coverage and provides states with more opportunities to align Medicaid with private health insurance. More specifically, the law permits states to restructure Medicaid coverage to look more like typical private employer coverage.”
Translation: Again, governors’ request denied. The Secretary’s letter talks about the law permitting states to restructure their Medicaid plans. However, the section of the Medicaid statute referred to in the law (Section 1937(a)(1)(A) of the Social Security Act) makes very clear that states can utilize “benchmark” standards to make Medicaid more like traditional insurance “as a state plan amendment.” In other words, states must ask Washington’s permission to change their Medicaid benefits – far from the “blanket discretion” the governors requested. Moreover, the health care law actually imposed MORE requirements, not less, when it comes to “benchmark” coverage – Section 2001(c)(3) of the law amended Section 1937 of the Social Security Act to require that states offer all the “essential health benefits” as part of their Medicaid “benchmark” coverage in 2014. So in addition to all the existing requirements, states must now also comply with the new benefit mandates under the law – which, as noted above, will be set by Washington bureaucrats, not the states themselves.
Governors’ Request: “Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments.”
Sebelius’ Response: “The traditional source for objective information about the costs of federal legislation is the non-partisan Congressional Budget Office, which has estimated that the Affordable Care Act will extend coverage to 32 million uninsured Americans…”
Translation: A substantive non-answer on several levels. First, the governors asked for a state-by-state assessment of costs and coverage impacts – which CBO has not done, and traditionally does not do. Second, the Medicare actuary recently testified that CBO’s assumptions with regard to the Medicaid expansion may be inaccurate. Specifically, the actuary indicated that one interpretation of the statute’s new definition of modified adjusted gross income could mean that “an additional 5 million or more Social Security early retirees would be potentially eligible for Medicaid coverage” than CBO originally estimated. That means that states could be facing unfunded mandates vastly greater than the $60 billion amount estimated by CBO.
So, for the record, that’s one answer partially agreeing with the governors’ request, and four responses that either deny or avoid discussing the gist of the issues the governors put forward. In sum, most of the responses avoid mentioning that the states’ parameters are being sharply limited by Washington – and the arguments about state “flexibility” fall flat when a review of the law reveals that the only flexibility states really have involves imposing MORE regulations and mandates, rather than getting out from under Washington’s myriad diktats. Not only is the Secretary’s response insufficient when it comes to the transparency of the regulatory process – and how it will impact states – but on substance, it implicitly reinforces rather than rebuts the notion that the 2700-page health care law imposes top-down, Washington-centric “solutions.”