Wall Street Journal: Editorial: The ObamaCare Waiver Breakthrough

Posted on June 30, 2017

Senate conservatives wish the health-care bill was more ambitious on deregulation, and so do we, though the benefits of its state waiver feature are underappreciated and worth more explanation. This booster shot of federalism could become the greatest devolution of federal power to the states in the modern era.

One of ObamaCare’s most destructive legacies is a vast expansion of federal control over insurance and medicine—industries that did not exactly lack supervision before 2010. This included annexing powers that traditionally belonged to states. The Obama Administration then used regulation to standardize insurers as public utilities and accelerate a wave of provider consolidation that has created hospital and physician oligopolies across the country.

Once in command, the federal government rarely eases off or returns control, but the Senate bill does. The Affordable Care Act included a process in which states could apply for permission to be exempted from some rules, but conditions are so onerous that these 1332 waivers have been mostly notional. The Senate Republican draft bill makes this process quicker, more flexible and broader, which could launch a burst of state innovation.

The Senate bill is broader than the House’s Meadows-MacArthur waivers that only apply to a few so-called Title I regulations. Creative Governors could use the 1332 exemptions to explore a wider variety of reforms to repair their individual insurance markets, lower premiums and increase access to care.

Introducing many competing health-care models across the country would be healthy. California and South Carolina don’t—and shouldn’t—have to follow one uniform prototype designed in Washington, and even a state as large as California doesn’t have the same needs from region to region.

If nothing else the repeal and replace debate has shown that liberals, conservatives and centrists have different health-care priorities, and allowing different approaches and experimentation would be politically therapeutic. The more innovative can become examples to those that stay heavily regulated.

Some conservatives in the Senate and the House are despondent because neither bill repeals the federal rules related to pre-existing conditions known as guaranteed issue and community rating. They’re right that these mandates are destructive. Community rating, which limits how much premiums can vary among people with different health status and risks, tends to blow up insurance markets, as ObamaCare is now showing.

But at least for now, conservatives have lost this political debate. There’s no Senate majority for catching the pre-existing conditions grenade, Governors aren’t hot on the idea either, and even insurers don’t want to return to the days of medical underwriting.

The Senate bet is that the 1332 waivers can help create enough of a recovery in insurance markets to overcome the distortions of these rules and bring down rates. The bill also relaxes ObamaCare’s age bands to a 5 to 1 ratio from a 3 to 1 ratio, meaning insurance for the oldest beneficiaries can be priced five times as high as for the youngest. Since age is a proxy for health risks and expenses, and a 5 to 1 ratio is close to the true actuarial cost of care, the policy result in practice is a wash.

The other objection to the waivers is that leaving ObamaCare regulations in law creates the risk that a future Democratic President could revoke the 1332 waivers to restore the ObamaCare status quo. But the bill includes a provision that legally bars the Health and Human Services Secretary from cancelling an approved waiver for eight years, and they can be automatically renewed. A Democratic Congress could change the law, but then a new Congress always can, and in any case successful state projects will be hard to overturn.

ObamaCare’s failures have created an appetite for new alternatives. If Senate Republicans can get to 50 votes, they’ll unleash the states to build post-ObamaCare options.