Section 1332 of the Affordable Care Act (ACA) permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance through the state or federal health care marketplace. While at least 18 states have considered legislation related to the 1332 State Innovation Waiver application process, only five states (Alaska, California, Hawaii, Massachusetts and Vermont) have actually filed 1332 waiver applications with CMS under the structure setup in the ACA. And to date, HHS has only approved one (Hawaii’s) request for an Innovation waiver to waive the ACA requirement that a Small Business Health Options Program (SHOP) operate in the state.
Many health experts have contemplated the opportunity 1332 waivers may afford states, but the low take up rate during the Obama Administration limited its potential to implement innovation. With the Better Care Reconciliation Act (BCRA) released by Leader McConnell last week, the changes made to the 1332 waiver process in the Senate health bill is the Republican’s attempt to make these waivers not only more attractive to states, but also easier for them to actually opt-out of many of the ACA requirements Republicans have long bemoaned.
Due to the constraints of the budget rules imposed under reconciliation, Senate Republicans are constrained from directly making the kind of market changes to the ACA they have publicly discussed since the ACA was signed into law. So, in order to still try to deliver on those public promises, the BCRA beefs up the 1332 waivers by simplifying the process and therefore increasing the ability of states to actually opt-out of several ACA created federal regulations.
Current Section 1332 Waiver Requirements Under the ACA
Section 1332 of the ACA provides the Secretary of Health and Human Services and the Secretary of the Treasury with the discretion to approve a state’s proposal to waive specific provisions of the ACA. Specifically, the Secretaries are authorized to waive a broad array of ACA provisions related to the following:
- Establishing qualified health plans
- Consumer choices and insurance competition through health insurance marketplaces
- Premium tax credits and cost sharing reductions
- Employer mandate
- Individual mandate
Some specific examples of ACA provisions that are allowed to be waived by 1332 under the ACA: the definition of a qualified health plan (QHP), what is an Essential Health Benefit (EHB), actuarial value requirements, requirements that exchanges must meet, premium subsidy design and eligibility requirements. However, the ACA does include an exhaustive list of requirements that any waiver application must prove that its plan will do, including:
- Will provide coverage that is at least as comprehensive as the coverage that would be provided absent the waiver;
- Will provide coverage and cost sharing protections against excessive out-of-pocket spending that are at least as affordable as would be available absent the waver;
- Will provide coverage to at least a comparable number of its residents as would be provided coverage absent the waiver; and
- Will be Federal deficit neutral.
Therefore, requiring that when a state submits an application under these ACA restrictions, it will also need to provide additional and resource intensive information, like: actuarial analyses and certifications, economic analyses, data and assumptions, targets, an implementation timeline, in order to support a state’s assertions that the waiver proposal complies with the requirements set forth above.
Trump Administration Touting 1332 Opportunities
In an effort to highlight to states that the new administration views 1332 waivers as a beneficial opportunity for them to innovate in their state markets, on March 13, 2017, Secretary Price sent a letter to state governors regarding 1332 waiver opportunities. Specifically, Secretary Price provided that State Innovation Waivers that implement high-risk pool/state-operated reinsurance programs may be an opportunity for states to lower premiums for consumers, improve market stability, and increase consumer choice. In addition to inviting states to pursue approval of waiver proposals that include high-risk pool/state-operated reinsurance programs, the Secretary encouraged states interested in applying for Section 1332 waivers to reach out to HHS and the Treasury Department for assistance in formulating an approach that meets the requirements of section 1332. , HHS in follow up even published a checklist for section 1332 State Innovation Waiver applications, including specific items applicable to high risk pool and state operated reinsurance program applications. The checklist is intended to help states pursuing section 1332 waivers as they develop and complete the required elements of the application.
The Better Care Reconciliation goes even farther
With Republican leadership in the Senate looking for ways to increase state flexibility to regulate their own insurance markets while not running afoul of the Senate budget rules, the BCRA draft suggests they have focused on using the 1332 waivers as the solution. While the BCRA does not increase the number of ACA provisions states may opt out of per a 1332 waiver, it does make several changes to the process so as to make it easier for states to apply for 1332 waiver authority. For example, the BCRA removes most of the ACA requirements that states have to meet in order to obtain a waiver, it also now directs that the Secretary must approve any complete waiver application as long as it doesn’t add to the federal deficit, it also increases the length of the waiver and restricts the ability of future administrations to cancel a waiver once it has been approved.
Specifically the BCRA would:
- Waiver Requirements. As discussed above, currently under the ACA a waiver application must prove that it does not reduce the number of people with health coverage; not reduce the affordability of health coverage; not reduce the comprehensiveness of health coverage; and not increase the federal deficit. The BCRA effectively removes three of the four waiver requirements, thus allowing states to waive coverage, affordability and benefit requirements as long as the state plan does not add to the federal deficit. In place of the coverage, affordability and benefit requirements, the BCRA requires only that a waiver application include a description of how the proposal would “take the place” of the waived requirements as well as a description of “alternative means” for increasing access to comprehensive coverage, reducing average premiums, and increasing enrollment.
- Deficit Neutrality. While the BCRA retains the requirement that a Section 1332 Waiver be deficit neutral, the legislation amends the requirement to provide that a waiver “not increase the Federal deficit” rather than requiring that a waiver be “budget neutral for the Federal government.”
- State Legislative Authorization. Under the ACA, in order for a state to apply for a Section 1332 Waiver, the state must pass a law that gives the state the authority to apply for and implement an innovation waiver. However, the BCRA provides states with greater flexibility by including an option to either enact a law or execute a certification. For purposes of 1332 waiver authority, the bill defines a “certification” as “a document signed by the Governor and the State Insurance Commissioner that provides authority for state actions” under a Section 1332 waiver.
- Secretary Discretion. The BCRA also significantly restricts the Secretaries’ discretion in approving Section 1332 Waivers. Under current law, the Secretaries “may” approve a waiver that satisfies the four statutory requirements – coverage, affordability, comprehensiveness and deficit neutrality. However, the BCRA removes that discretion and instead directs that the Secretaries “shall” approve the waiver unless it would increase the federal deficit. Therefore, the bill basically deems the waiver approved as long as it does not add to the deficit.
- Expedited Review. The BCRA also provides the Secretaries with the authority to implement an expedited application and approval process if it is determined that an expedited process is necessary to respond to an urgent or emergency situation regarding health insurance coverage in a state. The legislation does not define what would qualify as an “emergency” or “urgent” situation.
- Waiver Period. The BCRA extends the maximum waiver period from five years under the ACA to eight years.
- Incentive Funds. The BCRA also includes a $2 billion fund for the next two years in order to incentivize states to apply for waivers. The funds are intended to remove the cost barrier on states imposed by the application process. The fund is to be used to give grants to states to help with the cost of submitting and implementing a Section 1332 waiver.
Whether or not the BCRA, or a version of it, ultimately becomes law, we anticipate that states will increasingly take a look at the flexibilities offered in the 1332 process, especially considering the new Administration’s encouragement of states to do so. Even more so if these additional flexibilities and funds for the Section 1332 Waiver process are ultimately signed into law. We will continue to watch this space closely.