Why the 1332 Waiver in the Senate Health Reform Bill is the Only Opportunity for State Single Payer Systems Under the Bill
The health care reform bill passed by the Senate requires that all states set up Exchanges through which private insurance companies could sell their plans. Because federal laws preempt state laws, the federal health care reform bill would supplant any state attempt to set up a single payer system in lieu of an Exchange, which by its nature calls for multiple payers to compete. If the Senate bill is enacted, the only opportunity for states to move toward a single payer system is found in Section 1332. This section would allow a state with a plan that meets certain coverage and affordability requirements to waive out of the requirement to set up an Exchange for private insurance companies. Only with such a waiver could a state move in the direction of a single payer system.
The requirements of the Senate bill
Section 1311(b) of the Senate healthcare reform bill requires that “each state shall, not later than January 1, 2014, establish an American Health Benefit Exchange” through which a variety of health insurance plans could compete for buyers. Additionally, states would have to create “Small Business Health Options Program Exchanges” through which small businesses could purchase insurance. The bill allows regional or interstate Exchanges if the States agree to and the Secretary approves them.
State governments would have to run the Exchanges according to guidelines and minimum criteria established by the federal government. State insurance commissioners would continue to provide oversight regarding consumer protections, rate review, and solvency. States would also be allowed to create additional requirements for offering insurance to their residents and employers through the Exchanges, provided that they defrayed any related additional cost.
In each Exchange, traditional insurance companies would be allowed to compete for customers provided they met the federal requirements and any additional state requirements. Exchanges would include web portals and a toll-free hotline and insurance companies would use standardized formats and definitions to allow easy comparison of the prices, benefits, and performance of health plans, as well as standardized health insurance enrollment applications and standardized marketing requirements.
Under Section 1321(c), if the Secretary of Health and Human Services determined before 2013 that a State would not have an Exchange operational by 2014, or would not implement the standards, the Secretary would be required to establish and operate an Exchange in the State and to implement the standards.
From a legal perspective, it is quite clear that the federal requirements of the Senate bill would prevent a single payer system that excludes such an Exchange. Under Article VI of the U.S. Constitution, federal law is “the supreme law of the land, … anything in the laws of any State to the contrary notwithstanding.” For that reason, courts have held for hundreds of years that when a federal law conflicts with a state law, the federal law trumps, and the state law is “preempted,” or void. The most obvious type of preemption, known as conflict preemption, occurs when it is impossible to comply with both the federal law and the state law at the same time, or where the state law stands as an obstacle to the full purposes and objectives of Congress. In these cases, courts will quickly find preemption and strike down the state legislation.
This is exactly the type of preemption that is in play here. If the Senate bill were enacted into law, state agencies would have to set up Exchanges and allow private insurance companies to sell plans through them. It would be impossible for states to do this while at the same time operating a single payer system, which by definition would prohibit or prevent private competition through the Exchanges. Such a state law would therefore be effectively preempted by the federal bill.
Waivers from the federal Exchange requirements
If the Senate bill is passed, the only opportunity that states would have to move towards a single payer system would be to get a waiver from the Exchange requirements through Section 1332.
Section 1332 enables a state to apply for and receive a waiver (beginning in 2017) from the requirement to operate an Exchange. In order to get such a waiver, the state would have to present an alternative plan that would provide coverage at least as comprehensive and affordable, to at least a comparable number of residents, as the federal legislation would achieve. The state plan could not increase the federal deficit.
States could apply for Section 1332 waivers for up to 5 years at a time. To do so, they would have to comply with transparency regulations in the development of the state plan and enact a law providing for state action under the plan. If the state waivers were approved, the federal government would provide the State the aggregate amount of any tax credits and cost-sharing reductions that would have been paid to residents of the State in the absence of a waiver, which may only be used for providing health insurance coverage under the state plan.
Section 1332 does not expand existing waiver authority under any existing federal health program (e.g., Medicaid, Medicare, CHIP), but it would require the Secretary to create a coordinated waiver process so that a state could submit a single application for waivers under Sec. 1332 and under any other federal health law for which waiver authority already exists.
In order for states to try a different approach without first having to set up an Exchange, the date the waivers are currently available under Section 1332 of the Senate bill would have to be changed from 2017 to 2014. Otherwise, a state seeking to innovate using a different model – including something approaching a single payer system at the state level – would first have to go through all the trouble and expense of establishing and operating an Exchange before having the opportunity to receive a waiver.
Assuming the date in section 1332 is changed, however, this provision will facilitate state efforts to set up single payer systems. If a state plan to cover everyone through an alternative model is approved, they will not be required to set up an Exchange through which private companies compete. In other words, after receiving such a waiver, states would no longer be preempted from setting up their own systems in lieu of an Exchange.
 Another section of the bill, section 1331 creates a separate, relatively narrow waiver opportunity, allowing State flexibility to establish a “basic” health program for low-income individuals who are not eligible for Medicaid, but only those up to 200% of the Federal Poverty Level. It requires the Secretary to transfer to such states 95 percent of the tax credits and cost-sharing reductions that would have been provided to individuals covered by the “basic” plan if they were instead enrolled in qualified health plans in the Exchanges. However, it does not enable a state to avoid creating the Exchanges required by the bill – rather, it simply allows them to create one additional plan for a limited percentage of the population – those between 133% and 200% of the FPL.
WAIVERS FOR STATE INNOVATION – SEC. 1332 OF THE SENATE BILL
- We need to change the date the waivers under Sec 1332 of the Senate bill are available from 2017 to 2014 because making them unavailable until 3 years after states have to start the exchanges all but renders the provision meaningless.
WHAT THIS PROVISION DOES:
- This provision would allow states to propose to HHS an alternative system for delivering affordable, quality health care insurance to state residents.
- Before submitting a plan, the state must go through a thorough notice and comment process to ensure that its citizens supported the plan, and its legislature would have to pass a law authorizing the plan.
- This provision would allow states to receive waivers from certain components of the new law (exchange-related requirements only), only if the HHS Secretary finds that the under the state’s alternative plan:
- at least as many state residents would get health insurance coverage;
- the coverage would be at least as comprehensive as the Essential Health Benefits under Sec 1302 – to be certified by the CMS Actuary; and
- the coverage would be at least as affordable – in terms of both premiums and cost-sharing.
WHAT THIS PROVISION DOES NOT DO:
- It would NOT allow states to offer lower quality or less affordable coverage to its residents than would be available in the exchange – and it would NOT allow states to cover fewer people than would be covered.
- This provision does NOT amend or address ERISA.
- This provision does NOT allow waivers of the insurance market reforms in the bill, such as the bans on pre-existing condition discrimination.
- It does NOT expand existing waiver authority under any existing federal health program (Medicaid, Medicare, CHIP, etc.), but it would require the Secretary to create a coordinated waiver process so that a state could submit a single application for waivers under this section and under any other federal health law for which waiver authority already exists.