The Next Step in 1332 Section Waiver Changes

The Departments of Treasury and Health and Human Services  recently released four new Section 1332 “waiver concepts” to illustrate how states might take advantage of recently-released guidance to improve flexibility for waiver applications. The concepts are voluntary, and according to the Departments, they will not be automatically approved or relieve states from any statutory waiver requirements.

The concepts, laid out fully here, generally suggest:

• Directing public subsidies for health coverage into defined-contribution, consumer-directed accounts that individuals may use to pay for premiums or other medical expenses, and potentially allowing these public subsidies to be aggregated with other individual and/or employer contributions to such accounts;
• Creating new state-administered premium subsidy programs with eligibility structures that are designed to reflect individual states’ populations and insurance markets;
• Providing state financial assistance for individuals to purchase non-qualified health plan (QHP) coverage, including catastrophic plans; and
• Implementing reinsurance programs or high-risk pools to stabilize risk associated with individuals with high health care costs by waiving the Affordable Care Act’s (ACA) single risk pool requirement.

The Departments propose that states could fund these options, at least in part, with federal pass-through dollars made available under Section 1332 of the ACA.  Under this pass-through mechanism, states are entitled to receive federal funding to implement 1332 waivers in an amount equivalent to what the state waiver saves the federal government on premium tax credits, cost-sharing reductions and small business credits (i.e., what would have been paid by the federal government absent the waiver).  Contrary to recent press reports, the concepts do not propose to allow states to directly re-define uses for federal subsidies.

Relatedly, Section 1332 of the ACA specifically allows states to waive, with respect to health insurance coverage within the state, the following sections of the Internal Revenue Code (IRC):

• 36B (federal premium tax credits);
• 4980H (employer mandate); and
• 5000A (individual mandate).

Additionally, under Section 1332, states may waive:

• Section 1402 of the ACA – reduced cost sharing for individuals within certain poverty levels enrolled in exchange plans;
• Part I, Subtitle D of the ACA – qualified health plan requirements, essential health benefits requirements, annual limits on cost-sharing and deductibles, coverage/metal levels, limitations on catastrophic coverage eligibility, etc.; and
• Part II, Subtitle D of the ACA – exchange establishment and operational requirements, single risk pool requirement for individual and small group markets, etc.

As the Departments’ “waiver concept” document reminds states, the ACA’s mandatory “guardrails” still apply for approval of any waiver.  Specifically, a state plan must:

• Provide coverage at least as comprehensive as coverage under the ACA;
• Provide coverage that is at least as affordable for the state’s residents as coverage provided under the ACA;
• Provide coverage to at least a comparable number of the state’s residents as would be covered under the ACA; and
• Not increase the federal deficit.

On October 22, 2018, CMS released guidance aiming to reduce burdens on states applying for waivers. Working within the four statutory guardrails, the guidance aims to increase flexibility in the waiver application process by:

• Basing the analyses of comprehensiveness and affordability on coverage made available to state residents (not coverage actually purchased) such that a state plan will comply with the first two requirements above “if it makes coverage that is both comprehensive and affordable available to a comparable number of otherwise qualified residents as would have had such coverage available absent the waiver;”
• Allowing evaluations of comprehensiveness and affordability based on state residents as a whole, which may offset “small detrimental effects for particular residents”;
• With respect to the third requirement above, permitting states to provide access to less comprehensive or less affordable coverage as an option for residents, as long as comprehensive and affordable coverage is also made available (reasoning that the “coverage” requirement does not specify a type of coverage and therefore may be satisfied with any coverage, including short-term limited duration plans and all other forms of private or public coverage);
• Also related to the “coverage” requirement, considering longer-term (i.e., over the waiver term) increases in the number of residents covered, notwithstanding potential temporary reductions in coverage numbers; and
• Clarifying that existing state legislation combined with an enacted state regulation or executive order may, in some circumstances (e.g., states where the law generally gives state officials authority to implement and enforce the ACA’s provisions), satisfy the ACA’s requirement that states enact a law to enforce their 1332 plan.

The guidance supersedes guidance released by the Obama Administration in December 2015 and is applicable for all 1332 waivers submitted after, or not yet approved by, October 24, 2018 (although CMS is accepting public comments on the guidance until December 24, 2018).