Fiscal Waivers and State Innovation in Health Care

This Article describes how the Department of Health and Human Services (HHS) has used fiscal waiver authorities—delegated power to alter federal payments to states under Medicaid and the Affordable Care Act (ACA)—to influence state health policy choices. It highlights how the agency uses its fiscal waiver authorities to shape which reforms states choose to pursue, in some cases inspiring genuine state innovation and in others encouraging states to adopt reforms favored by HHS or discouraging states from adopting disfavored reforms. Moreover, while HHS has sometimes influenced state policy making in ways that further the substantive goals of the ACA and Medicaid (such as by facilitating reinsurance programs that make coverage more affordable), at other times it has done so in ways that undermine those goals (such as by incentivizing states to cut benefits and eligibility or by stifling state single-payer and public-option experiments). This Article theorizes fiscal waiver authorities as a double-edged tool from the perspectives of health policy, federalism, and administrative law. Fiscal waiver authorities are a distinctively valuable tool from the standpoint of health policy because they share federal savings, using delegated scorekeeping to overcome the “tyranny of the budget” and its adverse effects on health reform. But the informality currently surrounding the agency’s use of executive conditions on waiver approvals makes fiscal waiver authorities ripe for leveraging and abuse, raising health policy, federalism, and administrative law concerns. This Article concludes by offering concrete prescriptions for the next phase of health reform, which is poised to rely heavily on either existing fiscal waivers or new ones. It recommends that HHS bring greater formality to its process for approving, denying, or negotiating state waiver requests and cautions that if the agency does not do so then courts may force such formality on it by way of nondelegation, federalism, or administrative law doctrine. It also suggests the development of a pioneer pathway program with greater predictability and fiscal flexibility to facilitate health-promoting state innovations