Alternate State Waiver Paths under the Affordable Care Act

State leaders interested in reforming their health care systems face a dilemma. Every state’s health care system is utterly dependent on funding flows from federal health programs and subsidies in the federal tax system, but federal programs, in some cases, run counter to state political cultures and priorities. Section 1332 of the 2010 Affordable Care Act (ACA) offers an alternate reform path by allowing states to request federal waivers of many key ACA provisions. But a state’s alternate plan must achieve the same or better health coverage and affordability for state residents and be budget-neutral for the federal government. The ACA also allows states to develop so-called coordinated waivers combining a Section 1332 waiver, a Medicaid waiver and a Medicare waiver. The coordinated-waiver option opens new doors for states to fundamentally rearrange state and federal government roles in regulating and financing health care.

This analysis focuses on 2017 because it is the first year states could implement a waiver. The general approach is to use projected national spending totals from the Congressional Budget Office (CBO) and allocate the national totals to individual states using a variety of state-level data sources. Spending and financing levels for the nation as a whole are reported, as well as separately for each of the five most populous states—California, Florida, Illinois, New York and Texas. While important in their own right, the five states also reflect a range of political cultures and health care systems.

Some states might use a coordinated waiver to establish a single-payer system of tax-financed universal coverage. A key stumbling block would be the high tax rate required to fund a single-payer plan, particularly if it offers more comprehensive coverage than today’s norms. Other states might pursue a more-targeted coordinated waiver to replace the ACA’s health insurance marketplaces and Medicaid for children and nondisabled adults with income-related vouchers to buy private health insurance. In some states, projected funding levels for Medicaid and the marketplaces would be sufficient to support a broad-based voucher program. In other states, a voucher-based approach would face challenges in meeting the ACA Section 1332 coverage and affordability standards. States pursuing a voucher approach could potentially tap into additional federal funding if they agreed to implement the ACA Medicaid expansion as a base for the waiver. In general, states developing either a single-payer approach or a voucher approach would face an easier path if their waiver plans include substantial and effective cost-control components.