Notice & Comment

Faux Federalism

The following is an op-ed that I was shopping around for publication prior to the demise of Graham-Cassidy. It’s obviously less urgent now, but I wanted to put it out there as a time-capsule in case the bill is revived. The op-ed relates to the penultimate version of the bill, not the one that finally died this week.

In defending the Republicans’ latest and most radical effort to undo the Affordable Care Act, Lindsey Graham has said that the “choice for Americans” is “socialism or federalism.” Graham says he prefers federalism: a solution that shifts power away from Washington and back to the states.

There’s merit to the idea. Red states and blue states have different ideas about health reform. Why not give them the freedom to go their own way? Oregon, for example, might let people buy into the Medicaid program, which today covers only the poorest Americans. Kansas might set up an insurance program to cover its sickest residents in an effort to keep premiums lower for everyone else.

Health-care systems would vary from state to state, but that’s the point of federalism. What suits Michigan won’t suit Ohio, and they should each have the room to select their preferred approach unless there’s a good reason for national action. That’s true even when—indeed, especially when—clashing ideological views make it hard to find any kind of common ground.

There are other advantages. States can monitor local conditions and make fine-grained adjustments in their approaches more nimbly and effectively than distant regulators in Washington. And experimentation at the state level allows states to learn from one another about the approaches that work best.

But if you like federalism, you should fear Graham-Cassidy. Far from empowering states, it will assign them tasks they cannot perform; it likely won’t give them needed regulatory flexibility they need; and it will force them to pick which of their residents will have to lose insurance.

Indeed, all the talk about states’ rights masks what’s really at stake in the battle over health reform: does everyone deserve health insurance, the rich and poor alike? Graham-Cassidy offers a decisive answer to that question: no.

Here’s why. Graham-Cassidy would dismantle Obamacare, ending the expansion of Medicaid coverage to the poor as well as the subsidies that people use to buy private coverage. would go up in smoke, as would the individual mandate, the employer mandate, and a bunch of other taxes used to finance coverage.

In its place, Graham-Cassidy would offer block grants to the states. Those block grants aren’t nearly large enough to cover the lost Obamacare money: by one estimate, it will cut $243 billion over a seven-year period from the current baseline.

States that have worked hardest to cover the uninsured (like California) are penalized the most. States that have sabotaged Obamacare at every turn (like Texas) fare much better. But every dollar cut from the bill will mean one fewer dollar for insurance. Tens of millions of people will lose coverage.

The states could try to make up for the shortfall themselves, but they generally won’t have the fiscal capacity to do so. In contrast to the federal government, all the states (save Vermont) have to balance their budgets every year. When the next recession comes around, the ranks of the uninsured will swell at precisely the moment that state tax revenues take a nosedive. To keep covering the uninsured, states will have to either raise taxes or cut funding—which will only exacerbate the recession. This “countercyclical trap” makes states nervous about committing to cover the uninsured.

Federal money is the lifeblood of health reform because the states need to leverage the federal government’s ability to run a deficit in tough times. With the big Graham-Cassidy cuts, states will only have the flexibility to make really unpopular choices about who loses health coverage. What kind of federalism is that?

That’s if all goes well—and it won’t all go well. Under Graham-Cassidy, states are expected to establish the laws, policies, and infrastructure necessary to spend billions of dollars in infrastructure by 2020. That’s not enough time to navigate tricky state politics and hire hundreds of people with expertise in the complexities of Medicaid administration and insurance regulation. The likely result will be infighting, confusion, and chaos.

That’s especially so since the funding for Graham-Cassidy runs out in 2026. States are therefore being asked to reform their entire health-care systems around block grants that may abruptly terminate. The long-run uncertainty will make it that much harder for states to invest today in remaking their health-care markets.

It gets worse. In its current form, Graham-Cassidy allows states to opt out of Obamacare regulations. The waivers are broad: states could, for example, be exempted from the rule requiring insurers to cover the essential health benefits. Waivers would also allow insurers to charge sick people more for their health coverage, and to place annual or lifetime caps on their benefits.

But these waivers aren’t likely to make it into the final bill. To avoid the filibuster, Republicans are trying to pass Graham-Cassidy through the budget reconciliation process. By law, however, reconciliation bills can only contain provisions that affect spending or revenue. Provisions that are “merely incidental” to the bill’s budget effects can be stripped out by a Senate official known as the Parliamentarian.

The Parliamentarian hasn’t yet ruled on whether the waiver provision passes muster. On an earlier repeal bill, however, she said that Republicans couldn’t include a similarly expansive waiver provision: it was “merely incidental” to the budget. The Graham-Cassidy waivers have been drafted to dodge the problem, but the dodge is transparent. In all likelihood, the waiver provision will be struck.

The uncertainty over waivers means that Republicans don’t yet know what they’ll be voting on, even though a September 30 deadline for passing Graham-Cassidy through reconciliation is only a week away. They might not know until a few days—hours, even—before the vote is scheduled. And they may be voting on a bill that doesn’t afford states the flexibility that Republicans have promised them.

That’s no way to reshape one-sixth of the American economy. And it’s no way to honor the principles of federalism that appear in Republican talking points. Graham-Cassidy should be seen for what it is: an effort to prevent any level of government, state or federal, from making good on the promise of universal coverage.


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