New Concepts for Section 1332 Waivers Present Options–and Questions–for States

Chiquita Brooks-LaSure, Manatt Health

Following guidance released earlier this fall, on November 29, 2018 the Centers for Medicare & Medicaid Services (CMS) released a discussion paper entitled “Section 1332 State Relief and Empowerment Waiver Concepts” to provide states with additional guidance and information about four types of waiver concepts that could be approved under the earlier guidance.

Background

Section 1332 permits the Departments to waive certain provisions of the Affordable Care Act (ACA) related to insurance marketplaces, qualified health plans (QHPs) offered on marketplaces, essential health benefits for QHPs, and federal premium subsidies. Section 1332 establishes four guardrails that must be satisfied for a state’s waiver request to be approvable. Coverage under the waiver must:

1. Be at least as comprehensive as coverage under the ACA, defined as essential health benefits by the ACA;
2. Be at least as affordable as coverage under the ACA;
3. Be provided to at least a comparable number of people as the ACA would; and
4. Not increase the federal deficit.

On October 22, the Departments of Health and Human Services (HHS) and the Department of the Treasury (“the Departments”) released updated guidance setting forth their interpretation of Section 1332 of the ACA that authorizes states to waive certain provisions of the ACA and how they will consider state requests for 1332 waivers.[1] CMS released its discussion paper this week to provide states with a roadmap to use the revised authority described in the October guidance.

Overview

The CMS discussion paper provides a clearer picture of the types of 1332 initiatives that the Administration is likely to support, namely proposals that allow states to repurpose premium tax credit funding for plans offering more limited benefit packages, defined contribution arrangements (similar to Health Savings Accounts) and reinsurance and high risk pools.  It also identifies in detail the types of technical questions that states will need to consider and address to pursue these waivers. By outlining four types of initiatives that the Administration is likely to approve, this discussion paper will serve as a helpful template for states interested in pursuing new 1332 waivers consistent with these options. Some of these options could lead to less expensive coverage for healthy individuals and more expensive coverage for those with pre-existing conditions, although the discussion paper is careful to note that the 1332 guidance “maintains the same strong protections for people with pre-existing conditions as the law currently providers absent a 1332 waiver.”

The discussion paper goes into more detail about the purpose of issuing new 1332 guidance, stating that the shift in focus will enable states to develop policies so that individuals who want to retain coverage similar to what they had before the ACA can “continue to do so, while also permitting access to other options that may be better suited to consumer needs and more attractive or affordable” to others. The CMS-proposed model concepts seem to confirm is that plans that do not meet ACA requirements will now be counted as meeting the “coverage guardrail,” which will allow states more flexibility to design limited benefit packages.

The four waiver concepts that CMS describes follow. These waiver concepts are not the only waivers that the Administration could approve under 1332 authority, but by providing such a detailed template, the Administration is giving states interested in pursuing these options helpful technical assistance to smooth the waiver approval process.

Waiver Concept A: State Specific Premium Assistance. States could use the 1332 authority to design a new subsidy structure including:

1. Repurposing the premium tax credit and establishing a state premium credit based on age;
2. Determining eligibility based on a new affordability standard (i.e., subsidies available if health coverage exceeds a certain percent of income); and/or
3. Leveraging a similar state subsidy structure.

The discussion paper goes into detail about the implementation approaches that states could use to adopt these types of waivers, including states’ administrative responsibilities to administer this tax credit and how states in federally facilitated marketplaces could implement this type of proposal.

Waiver Concept B: Adjusted Plan Options. States could use the 1332 waiver authority to expand the availability of catastrophic plans to broader groups of people; and states may be able to use premium tax credits for plans that do not meet all ACA requirements. For example, a state could potentially receive pass-through funding and create a state subsidy for catastrophic plans; short term, limited duration plans; association health plans; and employer-based plans.

Waiver Concept C:  Account-Based Subsidies. States could repurpose subsidies into a defined-contribution, consumer directed account, similar to Health Savings Accounts called “Health Expense Accounts” (HEAs).

Waiver Concept D: Risk Stabilization Strategies. States could develop reinsurance waivers similar to those already approved, such as: a claims cost-based model (OR, MN, WI), a conditions-based model (AK) or a hybrid model (ME). The discussion paper also notes that states could implement an actual high-risk pool, which, like the high-risk pools in place pre-ACA and high-risk pools in operation under the ACA (the Pre-existing Conditions Insurance Program) do not need to meet all the ACA requirements.

Conclusion

The four concepts that CMS outlines open up some new options for states and provide helpful templates for pursuing the outlined options. However, states may find it challenging to craft a waiver application that reshuffles subsidies and benefits to offer better deals to younger and healthier consumers without making those who depend on the current marketplaces for affordable and comprehensive coverage worse off. At a broader level, any new waiver applications are very likely to trigger litigation over the validity of the October guidance and states will need to weigh whether to propose a waiver for 2020 that faces these obstacles.

[1] State Relief and Empowerment Waivers, https://www.federalregister.gov/documents/2018/10/24/2018-23182/state-relief-and-empowerment-waivers. Section 1332 of the ACA is titled “Waiver for State Innovation.” The new guidance at times refers to section 1332 waivers as “State Relief and Empowerment Waivers.”