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HomeCategoriesThe ACA's Section 1332 Waivers: Will We See More State Innovation in Health Care Reform?

The ACA's Section 1332 Waivers: Will We See More State Innovation in Health Care Reform?

August 2016
Joel Ario, JD, Managing Director, Manatt Health

While the Affordable Care Act continues to be politically polarizing, my experience with stakeholders from across the health reform landscape is that they are focused on effectively implementing the law and on making incremental – not radical – changes to it. The question is how such change might happen given the deep national divisions about what corrections are needed. One answer lies in Section 1332 of the ACA, which invites states to be “laboratories of democracy” in experimenting with ACA reforms that do not have enough support to pass Congress but could garner backing at a state level.

Joel Ario
Joel Ario
What Could States Do?

Section 1332 authorizes states to request five-year renewable waivers from the U.S. Departments of Health and Human Services (HHS) and the Treasury to modify four pillars of the ACA, with changes beginning as early as 2017. First, states may modify the rules governing covered benefits, premium tax credits and cost-sharing subsidies. Second, they may replace or modify their ACA Marketplaces by providing health plan choice, subsidy eligibility determination, and enrollment in other ways. Finally, states may modify or even eliminate the ACA’s individual and/or employer mandates.

In designing new approaches, states must satisfy four statutory “guardrails” by providing coverage that is at least as (1) comprehensive and (2) affordable to (3) at least as many residents as would have been covered without the waiver, all (4) without increasing the federal deficit. Substantive guidance on how reform proposals will be judged against these guardrails, released in late 2015, was decidedly more restrictive than some states had hoped. Among the significant limitations was the requirement to consider coverage and affordability impacts in each waiver year separately, as well as for population subgroups such as the poor, elderly and chronically ill. The guidance also bars states from using savings generated through a separate Medicaid expansion waiver to offset costs in a 1332 waiver. Finally, states wishing to use different rules for Marketplace functions or subsidies will have to make all necessary operational arrangements themselves rather than rely on HHS and the Department of the Treasury.

What Are States Doing So Far?

These limitations have largely discouraged states from proposing sweeping reforms. To date, only three states have published draft waivers, and each was narrowly drawn to resolve unique issues that put the state at odds with certain ACA provisions. The first phase of a Massachusetts proposal to maintain certain rating practices in its merged small group and individual market was approved by HHS on other grounds, obviating the need to file its 1332 waiver this year.1 Similarly, Vermont’s draft waiver to continue relying on direct enrollment through carriers rather than building a Small Business Health Options Program (SHOP) portal was rendered moot by new HHS guidance delaying the mandatory change to an online portal until 2019.2 That leaves only Hawaii, which has formally asked to maintain its 40-year-old employer mandate rather than implement a SHOP that would offer less generous coverage and potentially decrease employer-based coverage. Hawaii’s unique situation may make its waiver the only one to gain approval in 2016.

Two other states have recently passed legislation to pursue 1332 waivers. California hopes to allow undocumented immigrants to purchase Marketplace policies without subsidies,3 and Alaska is interested in using its state-funded reinsurance program to reduce Marketplace premiums.

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