Section 1332 of the Affordable Care Act (ACA) authorizes state innovation waivers. These waivers allow states to experiment with different methods of health coverage as long as they meet the basic minimum requirements as defined under the law.
The Obama administration released initial guidance for 1332 waivers in 2015, including a series of defined guardrails. However, in October 2018, the Trump administration released new guidance along with four new waiver concepts, easing the original guardrails while adjusting policy standards.
On May 1, 2019, in an effort to encourage more participation in the 1332 waiver process, The Centers for Medicare & Medicaid Services (CMS) and the Department of the Treasury issued a request for information seeking ideas for additional Section 1332 waiver concepts.
To understand the potential pros and cons of the changes being made, it’s important to define the differences between the 2015 and 2018 Section 1332 waiver guidance, highlight the potential pros and cons, and look at some of the states already participating.
Section 1332 Waiver Guidance: 2015 vs 2018
The original Section 1332 waiver guidance required all waivers to adhere to a set of four so-called guardrails:
- Provide coverage that is at least as comprehensive in covered benefits
- Provide coverage that is at least as affordable (taking into account premiums and excessive cost-sharing)
- Provide coverage to at least a comparable number of state residents
- Not increase the federal deficit
In addition, standards were established to evaluate whether or not waivers met those guidelines. Including:
- “Coverage” was defined as minimum essential coverage (MEC)
- Short-term limited-duration health policies were excluded
- Affordability was based on premiums, cost-sharing, and other out of pocket costs relative to income
- States must enact legislation to pursue and implement a 1332 waiver
Under the Trump administration’s new guidance, Section 1332 waivers are renamed State Relief and Empowerment Waivers. The 2018 guidance also includes five new guardrails:
- Prioritize private coverage over public coverage
- Encourage sustainable spending growth by eliminating regulations that limit competition
- Support state innovation
- Support and empower those in need by providing financial assistance to purchase private insurance
- Promote consumer-driven healthcare
The standards to evaluate whether or not applications meet these guardrails have also been updated. Now:
- “Coverage” is re-defined and includes plans that do not comply with ACA rules, including short-term, limited-duration plans.
- Evaluation of affordability of coverage will focus on the nature of coverage made available to residents versus the coverage they actually have
- States are encouraged to offer subsidies for non-ACA compliant plans via private exchanges
- States are no longer required to authorize 1332 waiver plans via legislation. States can now rely on a combination of existing laws and executive orders
Understanding the Potential Pros and Cons of Updated 2018 1332 Waiver Guidance
The Trump administration’s new guidance encourages states to innovate and provide affordable health coverage to their populations, but it also presents uncertainty. It’s unknown how the updated 1332 waiver guidance will impact healthcare as a whole, but a report from the Henry J. Kaiser Foundation suggests there are both pros and cons to consider.
For example, one of the four new waiver concepts released by CMS describes restructuring subsidy eligibility programs to make premiums cheaper for young adults. Implemented correctly, programs like these could significantly lower health insurance premiums and increase participation in the health insurance marketplace.
On the other hand, the new guidance allows states to set up and subsidize parallel insurance markets that include short-term policies with less overall coverage. Some argue this change will divide the risk pool, making it even more difficult for people with pre-existing conditions to receive coverage.
Additionally, there’s a concern the new waiver guidance will weaken the healthcare marketplace as a whole. Currently, ACA marketplaces must provide a “no-wrong-door” avenue for patients seeking information regarding tax credits and eligibility. Under the new guidance, private providers may choose to limit or end these services entirely.
States Participating In The 1332 Waiver Program
Thus far, eight states have received approval for their 1332 waiver applications including Alaska, Hawaii, Maine, Maryland, Minnesota, New Jersey, Oregon, and Wisconsin. Four other states – Colorado, North Dakota, Montana, and Rhode Island – have waiver applications pending.
Seven of these states used their 1332 waivers to receive federal pass-through funding, allowing the implementation of reinsurance programs that reimburse insurers for certain high-cost claims.
Iowa and Idaho took a different approach with unsuccessful results. In 2017, Iowa submitted a 1332 waiver application that would have significantly changed the state’s insurance marketplace. These changes included:
- Creating a single plan to be offered by insurers that could provide equivalent to the standard silver marketplace plan
- Replacing tax credits with flat premium subsidies based on age and income
- Establishing a reinsurance program
CMS said the plan wouldn’t be accepted and Iowa ultimately withdrew its application.
Idaho submitted a proposal without a 1332 waiver. CMS determined the plan wasn’t compliant with the ACA, but in a letter to the governor stated: “with certain modifications, these state-based plans could be legally offered under the [federal law’s] exception for short-term, limited-duration plans.”
Conclusion: 1332 Waiver Resources
A growing number of states are preparing 1332 waivers, but there’s still confusion and uncertainty regarding the new guidance. On July 1, 2019, CMS issued a new set of resources to help states better navigate the process, a direct response to their RFI two months earlier.
Whether or not states will use take advantage of this waiver guidance is up in the air, but by establishing a set of rules, state officials now have the ability to make changes, via waivers, to the ACA.