By: José Vasquez, senior staff writer
Amid all the headlines questioning the stability of the Affordable Care Act's (ACA's) exchange markets nationwide, you might have overlooked the ways states and the Trump administration are seeking to use waivers to reshape state-level markets. But what exactly do these waivers allow? How can states and the Trump administration use them to reform health care? What has the Trump administration already approved, what is the administration open to, and what might be bridge too far?
To fully understand these questions, it's essential to start with the basics. In Part Two of our waiver series, American Health Line breaks down everything you need to know about Section 1332 state innovation waivers—and the three key ways the Trump administration could use them to reform health care.
What are Section 1332 waivers, anyway?
As you probably know, the ACA created health insurance exchanges in each state intended to broaden access to health coverage and raising the standard for minimum coverage. But the ACA didn't set a single, unalterable national standard for what the exchanges must look like. Rather, the law's Section 1332 provides states the ability to test alternative ideas in the individual and small group health insurance exchanges—even if those ideas break with some of the laws usual standards and requirements.
For instance, states can—and in some cases have sought—so-called state innovation waivers to alter the ACA's:
- Cost-sharing limits for covered benefits;
- Essential health benefits;
- Federal subsidies that individuals receive to offset the cost of coverage;
- Health insurance exchange standards;
- Individual and employer mandates; and
- Metal tiers of coverage.
But states can't waive all of the ACA's requirements. For instance, Section 1332 authority does not extend to the law's consumer coverage protections, such as the ACA's protections for individuals with pre-existing medical conditions and its age and gender rating limits. In addition, states cannot use the ACA's waiver authority to alter their Medicaid programs (for that, they must file separate Section 115 waivers, which we covered in Part one of our series).
HHS in 2015 guidance also said states must demonstrate that their waiver requests would:
- Not add to the federal deficit;
- Offer health coverage to about as many residents as the current law;
- Provide health coverage with benefits at least as comprehensive as the ACA's "10 essential health benefits;" and
- Provide cost-sharing protections that would keep health coverage at least as affordable as the current law.
HHS and the Department of Treasury review every waiver request on a case-by-case basis using a process that can take up to 6 months for a final decision. Applications also must undergo a public notice and comment period.
3 major ways the Trump admin could use waivers to reshape ACA
Although former President Barack Obama's administration began laying the groundwork for innovation waivers, Section 1332 did not take effect until 2017, leaving much of the review and approval processes to the Trump administration. Ultimately, CMS under Obama approved just one waiver, a request from from Hawaii to waive a requirement for the state to create a Small Business Health Options Program (SHOP) and related provisions.
But while the Trump administration early on signaled a willingness to approve state innovation waiver requests, it so far has declined to go too far beyond the rules laid out by the Obama administration. To date, only four states—including Hawaii—have received federal permission to implement a state innovation waiver, while several other waiver requests have been rejected.
So what waivers might we expect to see in the months and years to come? Three possibilities stand out as particularly significant:
Waiver possibility #1: Allowing states to implement reinsurance programs
The Trump administration appears to have fully embraced state-based based reinsurance programs. CMS has approved seven waiver requests—from Alaska, Maine, Minnesota, Maryland, New Jersey, Oregon, and Wisconsin—that allow the states to use federal pass-through funds to create their own programs to reimburse insurers for a set percentage of high-cost insurance claims. For example, Alaska's program would fully or partially reimburse insurers for certain high-cost claims, while Oregon would reimburse insurers up to 50% of certain high-cost claims.
The Trump administration last year encouraged states to consider implementing
a reinsurance program "to lower premiums for consumers, improve market stability, and increase consumer choice," citing a reduction in Alaska's projected premiums after it received approval for a reinsurance program.
Since then, at least seven states have submitted or are considering submitting innovation waivers to create their own reinsurance programs. The proposals have also gained traction among federal lawmakers from both sides of the aisle who have introduced bills to expand funding options for state-based reinsurance programs.
Waiver possibility #2: Letting states eliminate the individual mandate
This one's a tad confusing, so bear with us.
The ACA required all individuals in the country (with a few exceptions) to purchase health insurance coverage or else pay a fine—a provision called the law's "individual mandate." The GOP's tax reform law, however, set the fine under the mandate to $0. Since individuals will thus face no consequences for choosing to go uninsured, many news outlets reported that the individual mandate had been essentially eliminated.
Technically, however, the individual mandate remains on the books, and as Tim Jost in a Health Affairs Blog post explains, insurers are still obliged to report information about covered individuals to the IRS under the individual mandate. Companies that fail to report could face penalties.
All eyes were thus on the Trump administration when Ohio in March submitted a waiver request to fully eliminate the ACA's individual mandate provision. However, CMS ultimately rejected the application, saying it was incomplete and did not meet federal requirements. In particular, CMS said the application did not describe a plan that would implement the waiver request and did not adequately describe the reason for the waiver request.
CMS in the rejection letter said it was willing to work with the state to revise or resubmit its application, but so far, state officials have not indicated what their next steps will be.
Waiver possibility #3: Letting states eliminate their exchange markets altogether
Some states have sought to go even further in their waiver requests: Iowa proposed to eliminate its exchange market altogether. In its place, Iowa wanted to require all insurers to sell one standardized health plan that was similar to the silver-level health plans sold on the exchange market. The plans would have had a $7,350 deductible for an individual and a more than $14,000 annual deductible for a family.
Iowa's proposal would have raised the income ceiling to qualify for premium tax credits to those with incomes over 400% of the federal poverty level and would have based the tax credits on individuals' ages and incomes, rather than varying the credits' value based on premium costs as they are under the ACA.
Experts at the time warned Iowa's proposals could have eroded the ACA's protections for low- and middle-income U.S. residents. But ultimately, Doug Ommen, Iowa's insurance commissioner, withdrew the request after CMS in a letter explained that the waiver conflicted with the ACA's limits on how federal funding can be used through the waivers.
Jost in a separate Health Affairs Blog post explained the law allows the federal government only to "pass through the funds it would have saved by reduced federal premium tax credits and CSR payments." That funding would have been insufficient to cover the full cost of the request—and Iowa officials were unwilling to make up the difference.
While few state innovation waivers have been approved to date, several states currently have submitted a waiver, released draft waivers, or passed legislation authorizing state officials to submit a waiver.
So keep your eyes peeled. There's much more debate, and likely drama, yet to come.