Graham-Cassidy’s Waiver Program Allows States to Erase Protections for People with Pre-existing Conditions

By Justin Giovannelli, Sabrina Corlette, Kevin Lucia and JoAnn Volk

Editor’s Note: This post analyzes an earlier version of the Graham-Cassidy bill. A revised version was released on September 24, 2017. CHIR analysts are currently reviewing that version and will have an update soon.

Legislation introduced last week by Republican Senators Lindsey Graham (SC) and Bill Cassidy (LA) goes about the task of repealing and replacing the Affordable Care Act (ACA) somewhat differently than the bills previously taken up by the House and Senate, but its approach is no less radical. For the roughly 90 million consumers who rely on the individual health insurance market or Medicaid to obtain coverage—and potentially, for millions more with job-based insurance, too—the dangers posed by the latest bill are great.

Reversing the ACA’s Coverage Gains

In the name of state flexibility, Graham-Cassidy eliminates the premium and cost-sharing subsidies available to consumers under the ACA and ends the Medicaid expansion. In their place, the bill creates a block grant program to fund state-designed and administered health programs. Transition to the block grant system at the spending levels established in the bill would dramatically cut federal support for health coverage—to the tune of several hundred billion dollars by 2026. That’s in the aggregate. In the particulars, the complex formula for allocating each state’s share of the diminished pie would effect a huge transfer of federal dollars among states, making some better off in the near term, but leaving most—especially those states that expanded Medicaid—with massive shortfalls. What’s more, federal dollars for the grants go away entirely after 2026, replaced by the blithe promise of unspecified appropriations at a later date. Not only does this funding cliff mean that all states would face funding shortages over the long-term, the lack of federal commitment makes the task of developing and administering durable state coverage programs that much harder. (For more on the ramifications of the block grants for states, including the difficult timing issues created by the program, see here, here, here, here, and here).

Gutting Protections for People with Pre-existing Conditions

For consumers, and particularly people who aren’t in perfect health, the story gets even worse. The legislation creates a new waiver program that allows states to opt out of key consumer protections. One type of waiver explicitly provides insurers freedom to charge higher prices to people based on their health status or medical history, a practice banned by the ACA. The bill’s broad language opens the door to theoretically unlimited premium upcharges based on any factor other than gender, race, religion, or national origin. This includes surcharges upon renewal of an existing policy—so if you’re healthy at enrollment but get sick mid-year, you may get a premium hike for your trouble.

Another waiver provision would allow states to weaken or simply wipe out federal essential health benefits (EHB) standards. The EHB rules require insurers to cover a minimum package of medical services, including benefits such as prescription drugs, maternity care, and mental health and substance use treatment services that many plans refused to cover prior to the ACA. A Graham-Cassidy waiver would allow insurers to exclude or severely limit access to these critical services, or revert to the old practice of charging even higher prices to include these benefits as an add-on for coverage.

There’s more. Because EHB rules interact with other consumer protections in federal law, eliminating benefit standards would have important and potentially far-reaching side effects. The ACA prohibits insurers from imposing annual and lifetime limits on benefits and sets an annual cap on a consumer’s out-of-pocket spending. However, these protections apply only to benefits defined as “essential.” States that narrow this definition, or give insurers authority to define it, would undermine these critical safeguards, as well. And this effect may not be limited to the individual and small group markets. As others have observed with respect to similar waiver provisions found in prior ACA repeal bills, the decision by even just one state to weaken benefit rules may reach across the country, potentially eroding protections against annual and lifetime limits for people with large-employer coverage nationwide.

A final word on waivers—it seems they will be easy to get. A state that wants a waiver need only submit a “description” of how it “intends to maintain access to adequate and affordable” coverage for individuals with pre-existing conditions. If a state provides this description of its best intentions, federal regulators appear to be required to grant the waiver. That waiver will then be deemed to be approved in all subsequent years, without provision for federal oversight, until the expiration of the whole block grant program in 2026.

So how many states would move to deregulate their markets in this way? The Congressional Budget Office’s analysis of similar waiver provisions in the earlier repeal bills projected that about half of the population would live in states that would obtain a waiver allowing insurers to provide narrower benefits or make use of medical underwriting. Given the pressures exerted on states by the Graham-Cassidy bill, it is possible that this estimate is too low.

Flexibility for States – or a Straight Jacket?

First, the funding cuts to Medicaid and marketplace subsidies leave state officials in a lose-lose situation. The only “flexibility” they’ll be getting is to make politically painful decisions about where and how to cut their coverage programs.

Second, even states with progressive leaders who want to maintain the ACA’s insurance reforms will be forced to consider rollbacks of EHB and rating requirements. Why? Because, in addition to cutting the ACA’s subsidies, Graham-Cassidy repeals the individual mandate. Both the subsidies and the mandate are essential to keeping healthy people covered and insurance rates affordable. Insurance companies, whose participation in this market is entirely voluntary, will not want to participate if only sick people sign up. Most likely, they will turn to their state legislatures and demand waivers from the ACA’s consumer protections as the only way to protect themselves from high-risk enrollees. Legislators, in turn, fearing a total collapse of their individual market, may well grant insurers’ requests. This is not speculative—several states, pre-ACA, faced similar dynamics in their insurance markets. Their experience was not pretty.

Looking Ahead

Senate Majority Leader Mitch McConnell has said the Graham-Cassidy bill will be brought up for a vote in the Senate next week. CBO’s estimates of the bill’s impact on cost and coverage may not be available for weeks, but it’s likely to show coverage losses at least as great as the 22 million projected to lose coverage under the Better Care Reconciliation Act (BCRA), the Senate’s previous attempt to repeal the ACA. That’s because the bill eliminates funding for Medicaid, premium tax credits and cost-sharing reductions that grows with need and replaces it with a block grant designed to pare back federal funding over time and push costs onto states. By one estimate, Graham-Cassidy’s block grant, combined with the funding cliff in 2026, would result in more uninsured over time than would occur under earlier proposals to repeal the ACA without a plan to replace it. The BCRA failed to gain enough support because of its effects on coverage and people with pre-existing conditions. The Graham-Cassidy bill may be even worse.

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