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States May Get Early Opportunity to Opt Out of Health Care Mandate

By Catherine Gordon, JD | June 29, 2012

In what is being touted as a concession on health care reform, President Barack Obama announced his support of a bipartisan amendment to the Patient Protection and Affordable Care Act that would allow states to opt out of several of the law's requirements starting in 2014.

This could relieve small businesses of the federal requirement to offer health insurance to employees. What's the catch? To be eligible for the waiver, states must show that they have enacted similar health care programs that achieve the same goals as the federal Act, in cost, coverage and access.

The president made his announcement on February 28, 2011, to the National Governors Association in Washington. Governors have criticized the health care law's burden on state governments, and their solutions range from reforming the law for more flexibility to outright repeal.

The "Empowering States to Innovate Act" was introduced in the Senate by Sens. Ron Wyden (D-Ore.), Mary Landrieu (D-La.) and Scott Brown (R-Mass.). To qualify for waivers, states must show that their health care plans will provide a similar level of benefits to at least as many people, at similar rates, without costing the federal government more money.

If they qualify, states would be exempt from implementing the key mandate of the health care law that requires most individuals and businesses to purchase insurance. However, to qualify for the exemption, states would still have to ensure coverage through methods such as automatically enrolling people in health plans or providing incentives for purchasing insurance.

If exempt, states would also be able to:

  • offer a wider variety of benefit plans
  • allow companies of a certain size to purchase coverage plans from a health insurance exchange
  • organize their state insurance markets to attempt to promote greater competition
  • create their own single-payer system, in which the government is the only insurer

Other significant requirements of the health care law would not be removed under this amendment. These provisions include:

  • insurance coverage of young adults under their parents' plan until age 26
  • paying for preventive services
  • providing insurance for people with pre-existing conditions
  • spending at least 80 percent of premium dollars on health care, rather than administrative costs
  • rules against lifetime limits on health care expenditures
  • rules against dropping coverage when people get sick

Critics say the president's offer is not offering any new flexibility to the states regarding health care. This waiver system is already in place, and the amendment would allow states to obtain waivers in 2014, three years earlier than currently scheduled in 2017. It appears extremely unlikely that the president's announcement will go very far in appeasing critics of health care reform.

The president said he is endorsing this amendment because "states should have the power and flexibility to innovate and find the health care solutions that work best for them."

However, House Majority Leader Eric Cantor's (R-Va.) statement on March 3 outlined a different legislative proposal: "House Republicans are taking serious action to remove barriers to economic growth--including repealing ObamaCare and cutting spending--so that people can get back to work and we can start to get our fiscal house in order."

Stayed tuned for the latest developments in the battle over the future of health care reform.

Office & HR

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