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CMS Guidance on ACA Section 1332 Waivers

This week, our In Focus section comes to us from Principal Nora Leibowitz, reviewing the Centers for Medicare & Medicaid Services (CMS) guidance on Section 1332 waivers. The State Relief and Empowerment Waivers guidance, published in the Federal Register on October 24, 2018, updates the guidance related to Section 1332 of the Patient Protection and Affordable Care Act (PPACA) and its implementing regulations. Section 1332 establishes State Innovation Waivers, the authority by which a state can make changes impacting:[1]

  • The employer mandate (Internal Revenue Code Section 5000A)
  • Marketplaces and Qualified Health Plans (ACA Title I, Subtitle D, Parts I and II)
  • Benefits and subsidies (ACA Section 1402; Internal Revenue Code Section 36B)

The new guidance, which supersedes the December 2015 guidance, covers requirements on the application review procedures, the calculation of pass-through funding, certain analytical requirements, and operational considerations. In addition, the new guidance refers to the previously-named State Innovation Waivers as State Relief and Empowerment Waivers.


The guidance lays out five principles for future Section 1332 waiver applications. State applicants must explain how their proposal will advance some or all of the following principles:

  • Provide increased access to affordable private market coverage, including promotion of association health plans, short-term/limited duration plans, and efforts to increase issuer competition
  • Encourage sustainable spending growth by promoting “cost-effective” health coverage and eliminating regulatory barriers
  • Foster state innovation that meets the needs of consumers and markets in the state
  • Support and empower those in need, including people with low income or high health care needs
  • Promote consumer-driven healthcare, helping people to make informed choices and seek value

Guidance Changes

The Affordable Care Act requires that waivers do not reduce the number of state residents with health insurance coverage or the comprehensiveness or affordability of that coverage. In addition, a waiver may not increase the federal deficit. The new guidance alters the federal interpretation of these “guardrails”.

ACA Section 1332 GuardrailPrevious GuidanceOctober 24, 2018 Guidance
As many people must have health insurance coverage with a waiver program as without Based on minimum essential coverage; must meet standard for each waiver year; identify impact on “vulnerable” populations, including low-income, elderly, and those with serious health issues or with a greater risk of developing serious health issuesAll private and public coverage, including private coverage that may not meet minimum essential coverage standard; allows temporary reduction in coverage if state can provide rationale; assess for all groups, including low-income and those with high expected health care costs
Coverage under a waiver must be as comprehensive as without the waiverAssessed based on coverage purchased by state residents; considered on its ownAssessed based on coverage made available to state residents (access); assessed in conjunction with comprehensiveness
Coverage under a waiver must be as affordable as without the waiverAssessed based on coverage purchased by state residents; considered on its ownAssessed based on coverage made available to state residents (access); assessed in conjunction with affordability
The waiver program must not increase the federal deficitDoes not include Medicaid savings or costs.Maintains previous requirements but expands allowable costs and savings to focus on aggregate waiver effects. Does not include Medicaid savings or costs.

Coverage Guardrail. Previous guidance required that at least as many residents be covered under the waiver as without it. This continues under the new guidance but does not require that the coverage be as comprehensive or affordable as before. A waiver that will not meet the coverage guardrail on “day 1” can still be approved if the state can justify a ramp-up period.

Comprehensiveness and Affordability Guardrails. The guidance changes the requirement to show that available coverage under the waiver is as comprehensive (scope of benefits is no less broad) and affordable (cost relative to income), rather than showing that coverage purchased meets those requirements as previously required. Comprehensiveness and affordability will be considered together rather than assessed separately. This will likely make it easier for states to show the guardrails are met under a proposal and is designed to encourage states to promote what the Department of Health and Human Services (HHS) describes as “innovative coverage” that may be less comprehensive than ACA-approved coverage.

Deficit Neutrality. The calculation of impact on federal revenue and spending can include any changes in federal premium tax credits and small business credits; employer shared responsibility payments and taxes on high cost employer coverage; changes in income and payroll taxes related to tax exclusions for employer-sponsored coverage and deductions for medical expenses; and Internal Revenue Service administrative costs, federal Exchange administrative costs, or other administrative costs associated with the waiver or alleviated by the waiver. This is broader than the previous requirement that only federal provider tax expenditures be assessed. The guidance also affirms previous guidance that Medicaid savings cannot be considered in the assessment of federal savings.

Federal Pass-Through Funding

Pass-through funding is money the federal government will give the state to implement the waiver, based on the amount of federal financial assistance (premium tax credits, small business tax credits, cost sharing reductions) that would have been paid for participants without a waiver but will not be paid due to the waiver provisions. This is consistent with previous guidance. States must explain why the change in federal spending is expected and how the funds will be used.

Analysis and Methodology

Actuarial analyses, economic analyses, data and assumptions, targets, and implementation timeline are all still required to show how the proposed waiver will comply with requirements. Federal analysis will generally rely on federal estimates of population, economic, and health care cost growth estimates, unless the state can make a case for a state-specific data set.

Operational Considerations

Previously, the Federally-facilitated Marketplace (FFM) was unable to accommodate state eligibility and enrollment rules that differed from the federal standard. Going forward HHS will allow the FFM to support state variation, including a state using an industry partner to create its own consumer-facing technology paired with FFM back-end technology. HHS is assessing the plan management, financial assistance, and consumer assistance flexibilities it can support and encourages states to engage early in the Section 1332 waiver application process to determine if the federal platform can meet state needs. States will be responsible for technology build costs. Federal budget neutrality calculations will include HHS costs for technology management and administration and Internal Revenue Service administrative costs for tax provision changes.

Application Timing

To ensure sufficient time for public comment, departmental review, and state implementation of a waiver, states are encouraged to apply during the first quarter of the year prior to the year changes would take effect. Additional time may be required if technology changes are included in the proposal.

State Authority

The guidance amends the requirement that state legislation authorize the Section 1332 waiver and program to be implemented, allowing states with existing legislative authority to pursue a waiver to apply for a specific waiver using state regulation or an executive order.

For more information, contact Nora Leibowitz.

[1] Section 1332 also allows changes to the individual mandate (Internal Revenue Code Section 4980H), but this is effectively moot as the mandate penalty was legislatively eliminated in 2018.