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Section 1332 State Innovation Waivers

This week, our In Focus, written by HMA Principals Nora Leibowitz and Donna Laverdiere, reviews Section 1332 State Innovation Waivers.

What Are Section 1332 Waivers and How Can They Be Used?

Section 1332 of the Affordable Care Act allows states to apply for State Innovation Waivers to pursue innovative ways of offering high-quality, affordable health coverage to state residents. This authority allows states to seek waivers of provisions related to these elements of the Affordable Care Act:

  • The individual mandate (Internal Revenue Code Section 4980H)
  • 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)

This broad authority is tempered by the requirement that the state show the proposal will provide access to coverage that: is available to at least as many state residents; is at least as affordable; and provides at least as comprehensive coverage as would have been provided without a waiver. In addition, the program implemented under a Section 1332 Waiver cannot increase the federal deficit. Waiver applications must follow requirements set forth in regulation, and they require federal approval, including an assessment of the state’s ability to meet requirements.

What Can’t Be Done with Section 1332 Waivers?

Reducing Overall Coverage or Financial Assistance. Under the current Section 1332 authority, a state may not reduce the benefits package or financial support for eligible residents. While some states have investigated changes to eligibility or covered services, at present this must be done within the requirements that coverage be as affordable and comprehensive with a waiver as without.

Changes to a State’s Medicaid Program. To make changes to Medicaid, a state must use a State Plan Amendment or a Medicaid waiver. Many states have used Social Security Act Section 1115 waivers to implement significant changes to their Medicaid programs, including waiving some Medicaid requirements and using Medicaid funds in ways not otherwise allowed.

A state seeking to make health system changes that affect both Medicaid and commercial markets may develop a companion Medicaid 1115 Waiver that works with the 1332 Waiver. The dual waivers can be used to support health care reform designed to align eligibility and enrollment practices, purchasing, and/or cost containment.

ACA Section 1332 State Innovation WaiverSSA Section 1115 Medicaid Demonstration Waiver
Used to make changes to state commercial individual and/or small group market

  • State agency is applicant (applicant agency is determined by state)
  • Waive mandates, change benefits, plan offerings, subsidies
  • Can be large-scale change to commercial market(s) or more narrow efforts (e.g., market stabilization)
Used to make changes to state Medicaid program

  • State Medicaid agency is applicant
  • Use to test and implement coverage approaches in Medicaid that do not otherwise meet federal program rules
  • May be comprehensive changes in eligibility, benefits, cost sharing, and provider payments, or more focused changes on specific services and populations.

Changes to Medicare or Other Federal Health Care Programs. States have limited control over programs that are federally administered.

What Are States Currently Doing with Section 1332 Waivers?

Reinsurance. In 2017, the first year that states could apply for a waiver under ACA Section 1332, CMS approved applications from Alaska (July), Minnesota (September) and Oregon (October). Each state has established a reinsurance program that is partially supported with federal funds.

Other Approval. Hawaii, which has had an employer mandate since the 1970s, in 2016 was given approval to waive SHOP requirements and related provisions. This situation was unique to Hawaii and is unlikely to be replicated by other states.

Other State Action. As of December 2017, 24 states have considered or passed legislation to develop a Section 1332 waiver. While a number of states submitted applications in 2017, several waivers were withdrawn by states during the year. In January 2017, California pulled its waiver, which would have allowed undocumented state residents to buy coverage in the state Marketplace, Covered California. Oklahoma’s reinsurance waiver was not approved by its September implementation deadline and was withdrawn. The state has signaled that it will resubmit an application, possibly on a larger scale than the initial reinsurance proposal. Iowa withdrew its application when it became clear CMS had significant concerns about the proposal. Massachusetts and Vermont applications were both deemed incomplete and not further reviewed by CMS, though Massachusetts has signaled it may pursue further reforms for the 2019 coverage year. Idaho has a draft Section 1332 Waiver application out for public comment that it plans to submit in conjunction with an 1115 Waiver.

What Has Changed or May Change Soon?

Executive Order. On his first day in office, President Trump signed an executive order pledging his administration to provide states with more flexibility and control in health care. This included agencies committing to using their authority and discretion to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

Agency Support. The President’s statement was followed in March 2017 by a letter to the governors from then-HHS Secretary Price, indicating support for reinsurance-focused waivers and the use of 1115 and Section 1332 Waivers to align Medicaid and private coverage rules.

Congressional Action and Proposals. While the rules regarding Section 1332 Waivers have not changed in the past year, the tax overhaul passed at the end of 2017 included a provision that eliminated the penalty associated with the individual coverage mandate. While the individual mandate penalty does not end until the 2019 tax year, it would be hard to imagine a state applying to waive this provision given the time it takes to develop and get approval of a waiver.

In addition, several Congressional health reform proposals discussed last year would have affected the applications and impact of waivers.

  • American Health Care Act (House). Would have added new waiver authority to eliminate Essential Health Benefits, allow premiums to vary based on the health of the insured, and allow states to set age bands. States would have been able to eliminate the employer responsibility payment, establish reinsurance without a waiver, and provide tax credits in and outside of Marketplaces.
  • Better Care Reconciliation Act (Senate). Proposed elimination of guardrails requiring the Section 1332 Waiver program provide as much coverage and coverage that is as affordable, to as many people as without the waiver. Would have eased Section 1332 Waiver approval, promoted expedited review, and lengthened the waiver period.
  • Lower Premiums Through Reinsurance Act (Collins-Nelson). Would add $4.5 billion for reinsurance programs established by a Section 1332 Waiver, and would expedite approval for such proposals.
  • Bipartisan Health Care Stabilization Act (Alexander-Murray). Would ease 1332 application and expedite approval process. Would relax affordability language and allow other federal program costs to be included in federal deficit impact calculation.

A combination of policies from the Collins-Nelson and Alexander-Murray bills may re-emerge based on deals made during the passage of the tax reform package at the end of 2017.

What Does This Mean for the Future of 1332 Waivers?

The Trump Administration has consistently messaged a desire to work with states seeking to innovate, and there is no reason to think this will change. While state interest in big changes has been limited to date, a number of states have indicated at least preliminary interest in market stabilization activities. If Congress or the Administration can make good on attempts to offer funding to support this work, it is likely that more states will jump into the 1332 Waiver waters. In the meantime, states should take seriously the administration’s statements that it will support state-based reform, and, if they think such changes would benefit state residents, use the authority in Section 1332 Waivers to design change that fits their residents’ needs. States like Idaho are now promoting programs that propose to combine changes in Medicaid and the individual market to improve affordability and access to quality care across programs. It remains to be seen how the Administration will react to such proposals under current guidance.

To watch the HMA Information Services webinar on 1332 Waivers, please click here.