The federal government’s recent shutdown had many people wondering if Washington can ever return to functioning properly. In fact, this is a feature of our system, not a bug: Congress holds the power of the purse, and it’s well within its rights to withhold funding when at loggerheads with the president over policies and priorities.
That said, these standoffs also serve as good reminders of another feature of our system: limiting the public functions managed by one central government. The Founders created a series of rivalries within government in order to restrain it, and one of them is between Washington and the states.
A benefit of that arrangement – had we properly maintained it – would be less disruption in public services when the rivalries within the federal government boil over. Likewise, if the rivalries within a state government grew too heated, the effects would be contained to its own borders.
The past couple of decades have been a living civics class in why the original balance should be restored. Perhaps no greater opportunity for doing just that exists than in health care – in large part because the Trump administration has done some very good work to help empower the states in that area.
The biggest shot in the arm for health-care federalism is a raft of new guidelines for how states can tailor their individual health-insurance markets to their local needs. It amounts to making states jump through some hoops to regain part of the autonomy they had before Obamacare, but at least the hoops are being made easier to navigate.
Specifically, the administration has offered states four ways to overhaul the markets that serve more than 10 million Americans – and which would likely serve far more, if Obamacare’s overzealous regulation hadn’t skewed them so badly in the first place.
First, states can seek flexibility to allocate the tax-credit subsidies differently. This could mean offering them to more people than today. It could also mean allocating them differently based on income, to provide a more gradual reduction as people’s income rises – and avoiding a dramatic drop at the end, known as a “cliff.”
Second, states can choose to allow the subsidies to be used for a wider range of insurance plans than today. Plans that offer more limited coverage for a much lower premium – to allow people to stay covered between jobs, for example, or for a 63-year-old retiree to bridge the gap until Medicare kicks in – aren’t eligible for the subsidies now, but could be. The same goes for health plans offered by trade associations and other groups to their members.
Third, states can use some of the money to pay for the expenses of the very costliest patients separately from others. Keeping them in a separate “risk pool” or covering their costs through reinsurance could prevent their costs from driving up the cost of others’ insurance. That’s basically the opposite of how these markets operate today, hoping to force younger and healthier people to buy more expensive insurance than they need, to bring down premiums for older and sicker people. It hasn’t worked.
I’ve saved the best for last. The fourth option is to allow the subsidies to flow into individual health accounts (similar to Health Savings Accounts) rather than all of the money going directly to insurers. Today, an individual’s only incentive is to use all of the subsidies to buy the most lucrative insurance plan at the lowest cost out of his own pocket. This change would allow people to shop for insurance plans – including some of the new options I’ve described – and save any unspent money to cover expenses beyond premiums, such as deductibles and co-pays. That would do far more to drive down total costs for consumers, not just their premiums.
Georgia is well-positioned to take advantage of this new flexibility. Doing so could be a big step toward a new federalism.