The Administration Tried to Make It Easier for States to Waive ACA Rules: Will Any Take the Plunge?

Late last year, the Trump administration issued a pair of regulatory guidance documents that effectively rewrote the Affordable Care Act’s (ACA’s) section 1332 innovation waiver program, which authorizes the federal government to permit states to establish programs waiving certain provisions of the ACA. Once recognized as a tool for states to improve health coverage in line with the ACA’s goals, the waiver program has been recast to offer states a way to undermine health insurance coverage protections for their residents.

Still, it’s not yet clear whether any state will take up that offer. A discussion paper released by the administration highlights states’ new waiver options, but doesn’t resolve a host of difficult policy choices and operational hurdles that states must address before proceeding with an untested waiver plan. There are also serious legal questions that seem destined for the courts: Are the administration’s weaker standards for waivers consistent with the ACA? And was it legal to make such significant changes to the program without notice and comment rule-making? Given these issues, this year we may continue to see the type of waiver actions seen in 2018: largely nonideological efforts by states to implement programs shown to be both workable and beneficial for people and health insurance markets.

What Are Section 1332 Waivers?

• Section 1332 of the ACA allows states to apply to waive certain provisions of the health law in order to implement their own programs to improve health insurance coverage.
• States can waive rules governing the ACA’s marketplaces, premium and cost-sharing subsidies, and essential health benefits, among others.
• States may not waive ACA protections for people with preexisting conditions, prohibitions on health status and gender rating, and nondiscrimination rules.
• States can access federal funding under the program. If a state’s waiver plan is forecast to reduce federal spending on coverage subsidies, the federal government will pass through those savings to the state for the purpose of implementing its waiver.
• The program does not give states carte blanche to waive federal law. A waiver cannot be approved unless it complies with statutory “guardrails” that disallow any proposal likely to undermine comprehensive, affordable coverage, cover fewer people, or impose additional costs on the federal government.
• States must have statutory authority to submit the waiver application to the federal government and implement the waiver program.

States Are Using Waivers to Shore Up Their ACA Markets

Since 1332 waivers became available to states in 2017, federal officials have approved eight applications. Seven of these make use of federal pass-through savings — money the federal government would otherwise have spent on coverage subsidies, absent the waiver — to partially fund a state-operated reinsurance program. (The other, the first waiver to be approved, allows Hawaii to harmonize its own, often more stringent small-group market insurance rules with those of the ACA.)

Reinsurance is designed to control premium increases by limiting insurers’ financial exposure to their enrollees’ high-cost claims. The states’ waiver-funded reinsurance initiatives have followed on the heels of the ACA’s temporary federal reinsurance program, which operated successfully until its phase-out in 2016. While the state programs aren’t a substitute for a permanent federal reinsurance solution — a bipartisan bill that would have provided federal reinsurance funding fell apart in the last Congress — they’ve done much to moderate premiums. This has been to the particular benefit of people who don’t receive federal subsidies for coverage and who therefore bear the full brunt of insurers’ rate hikes. In 2018, the programs were estimated to lower premiums by an average of between 8 percent and 20 percent. In Maryland, officials pegged the 2019 rate impact of the state’s new program at 30 percent.

Support for reinsurance has been bipartisan among state and federal policymakers. Further, the policy hasn’t been called into doubt by the administration’s radical new vision for the waiver program. Like the previous administration, the Trump administration supports the use of waivers to fund state reinsurance and its new discussion paper reaffirms this, helpfully describing the ins and outs of the approach.

Beyond Reinsurance, Little Action Yet

Only a few states have seriously entertained innovation waiver proposals other than for reinsurance. Some legislatures have considered the use of a waiver to loosen eligibility requirements for ACA catastrophic plans (unsubsidized coverage currently available only to those under age 30 or those who have experienced a financial or other hardship). Colorado recently completed a study of this option, which suggested that expanded eligibility was likely both to increase individual market premiums and federal subsidy costs. Though causing federal spending to rise would violate the waiver “guardrails” and seemingly doom the idea, legislators in Virginia seem poised to send a similar proposal to the governor’s desk for the second year in a row (the 2018 bill was effectively vetoed). Meanwhile, in Rhode Island, officials are developing two waiver plans: one for reinsurance and another that would permit sole proprietors to purchase ACA-compliant, small-group coverage through the state’s small-business marketplace.

Before this year, a few states had considered waivers for broader reforms, but these haven’t come to fruition. Vermont, for example, planned to use a waiver to help implement a single-payer program, but the underlying plan ultimately foundered. In 2017, Iowa sought a waiver to create an alternative marketplace and subsidy program. The plan, which was withdrawn after federal officials signaled that the state’s cost assumptions were too optimistic, generated criticism both for its operational complexities and for projections showing it would likely make coverage less affordable for lower-income residents.

Looking Forward

The administration’s approach to 1332 waivers is a reaffirmation of its support for short-term and other limited-benefit insurance products that don’t work for people with preexisting conditions and disrupt the market for affordable, comprehensive coverage. What the policy change tells us about the states, however, is less clear. So far in 2019, legislators from well over a dozen states have introduced bills authorizing waivers to facilitate the expansion of comprehensive coverage: for example, through a Medicaid buy-in or other public insurance option. The mileage these proposals get in their respective states is likely to vary considerably, but all waiver applications must run through the federal government — and the administration has made clear it will view programs that focus on public coverage with a skeptical eye.

On the flip side, there appears to be scant early interest in using waivers to broaden the availability of low-premium, limited-benefit products (though Iowa recently commissioned an analysis suggesting state officials may be considering this). In states where that is a goal, policymakers may well conclude the waiver program is too cumbersome a means to achieve it. The thorny technical, operational, policy, and legal questions clouding such an undertaking, one that’s resource-intensive to begin with, suggest states should be deliberative and study closely their options for future years (a project several states had already begun). In the meantime, reinsurance waivers, which have bipartisan support and a track record of results, may remain the predominant near-term approach for states seeking to make health insurance coverage more affordable.