New Federal Guidance on Section 1332 Waivers – What does it say and what might it mean

Today, the Department of Health and Human Services and the Department of Treasury released guidance on Section 1332 waivers, also known as State Innovation Waivers. The guidance focuses specifically on how the federal government will assess a proposal’s effect on the four guardrails, or general limits, on what the impact of a waiver would be on affordability, coverage levels, comprehensiveness of coverage and the federal deficit. The guidance also discusses the interaction of different programs, including section 1115 waiver proposals on a section 1332 application budget, and operational considerations for the federally-facilitated marketplace (FFM) and the Internal Revenue Service (IRS).

First read takeaways
In general, the federal government is looking at statewide impacts of a Section 1332 waiver to determine if the application meets the protections in the section, namely, that at least the same number of people are covered and that the coverage is as affordable and as comprehensive. However, today’s guidance specifically calls out protections for vulnerable populations in the forecasts. This means that a state cannot propose a program under which vulnerable populations lose coverage even if the total number of residents covered stays level. The guidance also highlights specific protections for those with a high burden of health costs relative to income. This will ensure financial protections must remain in place at lower income levels and for cost-sharing programs.

The deficit neutrality guardrail is broadly defined as the comparison in overall federal spending net federal revenues with and without a waiver. This includes the impact on the collection of income, payroll and excise taxes, as well as user fees, by the federal government. The guidance also calls out the administrative cost to the federal government as a part of the overall federal spending relative to the waiver application.

In addition to the guardrails, the guidance speaks to how the federal government will assess (or not) the impact of a proposed waiver on other programs. The guidance specifically excludes from consideration the coordinated effects of any other proposal. This means that coverage or affordability estimates cannot include the forecasted effects of a Section 1115 waiver (a Medicaid waiver) that has not been approved. It also means that, from a deficit neutrality standpoint, a state cannot rely of savings proposed under a Section 1115 Waiver to counteract increased expenses in a Section 1332 proposal. This limitation may make it more difficult for states to reach coverage and affordability goals on a statewide basis, using both Section 1115 and Section 1332 waiver authorities.

The guidance also speaks to limitations on how flexible current federal programs can be to help to implement a Section 1332 waiver. Neither healthcare.gov, nor the IRS, can create individualized infrastructure to support state programs that vary from the standard program. This clarification will make it much more difficult for a state using healthcare.gov to use Section 1332 authority to vary eligibility, enrollment or insurance product standards. In fact, the guidance suggests that a state wishing to do so should consider moving to a state-run technology platform.

Finally, the guidance recognizes that some Section 1332 waiver applications will be less intensive and have a more narrow impact on a state. Therefore, the federal government will allow for flexibility in the public comment process, making it clear that more complex and broad-based proposals will require a greater amount of public engagement.

The reaction to the guidance over the coming weeks will be telling. While the restriction on the joint budget aspects of Section 1332 and Section 1115 is definitely limiting to states, there is still a lot of flexibility for states to reach health reform goals in their states. Whether states can navigate through the protections, the funding mechanism and operational limitations remains to be seen.