The last-ditch effort to repeal and replace the Affordable Care Act is dead for now. Even defenders of Graham-Cassidy, the bill that failed to get to 50 votes this week, didn’t like the process — rushed as it was to meet an end-of-the-month deadline without proper hearings, debates, or scored estimates.

But to most conservatives, there’s a sound principle behind it, one that’s very likely to come back in the future: health care federalism.

Graham-Cassidy would have effectively turned health care spending into a lump sum and handed it over to the states. The conservative Philip Klein describes that as the “one great idea” in Graham-Cassidy, since it would let states in effect “design their own health care systems.”

When Vox’s Jeff Stein interviewed Republican senators supporting the bill, they tended to echo one another: States “are very flexible, very innovative,” one said. The bill “lets states innovate and adopt creative solutions to local problems, which vary state by state,” said another. The mantra: Getting rid of the federal government’s role and putting states in control of our health care system is the solution to many of our problems.

This is wrong in both practice and theory. Republicans assume an either-or structure to the concept of federalism: States either have control or they don’t. But federalism is really about where and how states innovate, and I see at least three different kinds here. The ACA already has a significant amount of federalism built into it, in terms of flexibility and innovation. The catch is that states must help more people get health insurance and health care.

What the Republicans would do is allow states to “innovate” in the direction of lowering standards. Graham-Cassidy also showed that the Republicans are comfortable with an even worse kind of federalism, one designed to encourage innovation in the diversion of funding from its intended purpose.

Republicans have a black-and-white definition of federalism that doesn’t match reality

Federalism isn’t about simply choosing between the federal government or the states. Most programs are jointly administered and funded. As Jenna Bednar, a political scientist at University of Michigan who studies federalism, described it to me, “Federalism is about the balance between the federal and state governments in shared decisions, rather than giving authority exclusively to one or the other."

The Republicans said, again and again, that they want states to have flexibility. But consider the leeway states already have in determining what their Medicaid programs and ACA exchange health care markets look like. Waivers exist for Medicaid that are being used to drive innovation and experiments. Twelve states are experimenting with better mental health and substance abuse health care delivery, and 16 are experimenting with tying provider payments to performance goals. States can apply for waivers for the ACA exchanges as well, to tweak how the system is run locally.

“States have many options and tools available to them in their marketplaces — for example, what a silver plan’s cost-sharing can look like,” Jessica Schubel, a health care expert at the Center for Budget and Policy Priorities, told me. States can also innovate in Medicaid, she points out — for instance, by paying providers based on quality of outcomes versus volume of care,

Yet there are guardrails. Some things can’t be traded away. The ACA allows states to experiment as long as state-level changes don’t reduce the “essential” insurance benefits people get, change the basic affordability of insurance, cover less people, or increase the federal deficit.

That state of affairs reflects one kind of federalism: Create a strict floor and let states create the best program that satisfies the basic criteria. “The federal government is going to put forward a well-designed default, but if a state demonstrates that it has a better of way of achieving the same goals, the state can implement it,” says Matthew Fiedler, a health care expert at the Brookings Institution.

Graham-Cassidy represents a different type of federalism, one that allows states to go below the congressionally mandated floor, paring coverage and opening the door to discrimination against those with preexisting conditions. “Innovation” here means sacrificing benefits or covering fewer people. This is not how most people would think of innovation, which typically involves creating something of value.

This is about assigning who has to eat the losses.

And someone would have to eat losses, since Graham-Cassidy would cut funding for health care by an estimated $215 billion. The CBO notes that the exchanges would have become unstable because of subsidy cuts and the end of the individual mandate, which would lead healthy people to exit the system.

If we’re returning power to the states, why not let them offer a public option?

Note how fake, how blinkered and small, the Republican version of federalism is. First, it pushes the energy of innovation in the wrong direction, toward assigning losses instead of building up care. Worse, it also limits choices. In theory, federalism should allow states to keep what they already have, if they so choose. But this would have been almost impossible under Graham-Cassidy, given the massive spending cuts. If federalism were truly a commitment to letting states choose their own path, many states would move further toward Medicare-for-all.

Yet Republican leaders have given no hint they’d let states buy into a Medicare public option. If Graham-Cassidy had passed, there would have likely been an amendment that prevents states from going single-payer. “You can do whatever you want as long as it’s in the direction that we want you to go” is not true federalism, even by the GOP’s definition.

We shouldn’t “free” states to divert health care money to other purposes

Worse, proponents of Graham-Cassidy on federalism grounds haven’t learned anything from recent experiences with block-granting. The University of Michigan’s Bednar argues that there’s nothing necessarily wrong with the concept. But it’s important to understand the incentives surrounding block grants. “In the aftermath of welfare reform” — which involved block grants — “Temporary Assistance for Needy Families didn’t reward the states for good outcomes, like keeping people out of poverty,” she points out. “Instead it rewarded them for reducing caseloads, which states could accomplish by reducing eligibility for aid.”

Based on what little information the Republicans provided about Graham-Cassidy, it certainly looked as if states could have used block grant funds to replace already existing health care spending — say, funding for state employees. That would have freed up cash for tax cuts or other non-health-related projects, and reduced overall national levels of health care spending.

Brookings’s Fiedler, who in a recent paper attempted to estimate the degree to which states would use block grants for non-health purposes, says: “If you give states this broad flexibility in spending, you can’t avoid this kind of diversion of funds to unrelated purposes.”

This represents yet another kind of federalism, one in which the incentives are to innovate in the areas of fraud and budgetary trickery. The incentive here would be to take money labeled as going to health care and divert it to other social policy goals.

The two most popular social insurance programs, Medicare and Social Security, have virtually no state-level involvement. There may be a lesson in that. Republicans are giving federalism in a bad name in the social-policy arena. If states are given the freedom to search for better ways to improve accessibility and outcomes, as the ACA did, that’s great for society.

If they’re given latitude to find the most expedient way to cut insurance rolls and roll back coverage, that’s no form of liberty worth entertaining.

Mike Konczal, a Vox columnist, is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. He also blogs at Rortybomb, and his Twitter handle is @rortybomb.

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