Iowa Wants to Rewrite Obamacare. What Happens if Trump Lets It?

Like this snow-covered cornfield, Iowa’s health insurance market could be looking pretty bleak soon.

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Right now, the second most important health care story in the country may well be unfolding in Iowa.

The most important story, of course, is the Senate GOP’s attempt to craft an Obamacare repeal bill entirely behind closed doors. But if that effort sputters—God willing—the future of the Affordable Care Act, and the extent to which conservative-leaning states will be able to simply rewrite it on their own, could hinge on what’s currently taking place in Des Moines.

This week, Iowa submitted a plan to federal regulators meant to stave off the impending collapse of its individual insurance market. There is currently a strong possibility that, come 2018, Iowa could become the first state without any carriers offering coverage on its Obamacare exchanges. Of the four insurers currently operating there, two—Aetna and Wellmark—have said they will pull out of the state’s market entirely next year because of the losses they’ve piled up there. Another, Gundersen, only sells coverage in five counties and hasn’t committed to sticking around. The last, Medica, offers health plans across the entire state but has warned it may have to bail ”without swift action by the state or Congress to provide stability to Iowa’s individual market.” If the company does exit, Iowa’s exchanges will be more barren than a cornfield in January.

Insurers are losing money on Iowa’s Obamacare exchanges, and fleeing them, for essentially the same reason they are elsewhere: Their customers have turned out to be older and sicker than anticipated. But those problems are especially acute in lightly populated rural states like Iowa, where the government has made matters worse by letting many residents hold on to their pre-Obamacare insurance plans rather than force them onto the exchanges. That’s made the pool of customers thinner than it might otherwise have been. Much has been made of the fact that Wellmark, which lost $90 million over three years, got stuck covering a young hemophiliac whose medical bills cost the company $1 million per month. But the fact that a single teenager with a rare condition could turn into a budget line item for an insurer is really just a colorful illustration of how tiny and unbalanced Iowa’s individual market really is.

Of course, it also doesn’t help matters that Donald Trump is threatening to bring all of Obamacare crumbling down by withholding crucial subsidy payments from insurers.

With the threat of disaster looming, Iowa officials have asked the U.S. Department of Health and Human Services for permission to implement a “stop-gap” measure that would let them dramatically rewrite the rules of Obamacare within their state, at least until Congress figures out what it wants to do about health care. As Larry Levitt of the Kaiser Family Foundation put it to me, their plan is a bit like a mashup of the American Health Care Act, which House Republicans passed last month, and the Affordable Care Act—in other words, Trumpcare lite.

Under the proposal, Iowa’s individual insurers would only be allowed to sell a single, standardized health policy—the equivalent of an Obamacare silver plan—which would be offered off of the ACA’s online exchanges. Insurers would still be required to cover the essential medical services required under Obamacare, and carriers would still be banned from discriminating against customers with pre-existing conditions. But the state would replace Obamacare’s subsidies with tax credits that would be available to higher earners (they’d scale based on age and income) and would no longer require insurers to reduce out-of-pocket costs for poorer customers. Finally, it would add new enrollment restrictions aimed at keeping people from waiting until they were sick to buy coverage and—borrowing from the House bill—would create a large reinsurance pool to defray costs for insurers who get stuck covering extremely expensive patients.

It’s a fairly dramatic rewrite. Low-income Iowans could come out a bit worse in the bargain while some upper-middle-class residents would come out ahead. Meanwhile, insurers would be less likely to lose money if they have to cover a severe case of hemophilia. While those trade-offs might not be entirely ideal to some, it could keep the insurance market functioning. Wellmark has said it would keep selling coverage in Iowa if the proposal—which it reportedly helped negotiate—is implemented. And a health care landscape with one or two insurers beats a health care landscape with no insurers.

But can Iowa legally do it? That’s not exactly clear. Under current law, the federal government is allowed to let states tear up Obamacare’s rules and experiment with new insurance systems through what are known as 1332 innovation waivers. But those come with a number of strict requirements—among them, states need to show they’d provide coverage that was just as affordable and comprehensive as under Obamacare while also providing a 10-year forecast showing the changes would be budget-neutral to the federal government. It’s not clear Iowa can actually hit all three of those marks at once, or check the many procedural boxes necessary for a waiver—and so the state is asking the administration to relax the rules. “The ‘traditional’ 1332 Innovation waiver was designed to allow states to propose innovative and long-term changes to the functions of the ACA,” its proposal says. “Iowa’s proposal is a short-term solution to prevent the crisis of not having any carriers offering ACA compliant plans in 2018.”

The subtext of Iowa’s proposal seems to be that Republicans will have repealed and replaced Obamacare by 2019, at which point it won’t really matter whether their system meets the waiver program’s strict requirements. (“Iowa intends to revisit the functionality of this program in lieu of any federal guidance that may be applicable for 2019,” the proposal says.) But if Mitch McConnell & co. bungle that effort, giving Iowa a green light to revamp Obamacare, no questions asked, could create a new and potentially powerful precedent. Sure, the state is framing this as a one-time response to an emergency situation. But what counts as an emergency? If a red state found itself with just a few counties lacking insurers, would the Trump administration let it do a top-down rewrite of the law? And what if Trump did decide to eventually cut off those crucial subsidies and bring the ACA markets crashing down? In that case, many states might be able to make a case for emergency measures. Maybe activist groups would sue to stop them from rewriting the law, but if the alternative is a cratered insurance market, maybe not. Under this scenario, we could end up with a landscape of states with radically different health-care regimes—some that look like Obamacare, some that look like Trumpcare, and some, like Iowa’s, that are Frankensteins of the two.

Iowa is facing a legitimate crisis, and many of the steps it’s taking to fix it make sense. But the state is also showing how conservatives could try to kill off Obamacare by regulatory fiat if they can’t pull off the job on Capitol Hill.