With the Supreme Court deciding that the Patient Protection and Affordable Care Act (“ACA”) is here to stay, state policy makers are starting to consider alternatives to federal regulation. The ACA contains a unique section that provides state leaders with the opportunity to waive certain provisions of the ACA to achieve state coverage objectives. It also provides the potential to combine this waiver with waivers of other federal requirements, such as Medicaid waivers under Section 1115. These waiver provisions are referred to the Section 1332 Waiver or the State Innovation Waiver.
Beginning in 2017, under the State Innovation Waiver, states may waive any or all of the following ACA requirements:
- Individual requirement to maintain minimum essential coverage (aka “the individual mandate”);
- Employer mandate;
- Establishment of Qualified Health Plans (QHPs) except for Essential Health Benefits;
- Delivery of QHP benefits through a health insurance exchange;
- Advanced Premium Tax Credits (APTC) to subsidize coverage in the exchange for qualified individuals between 100 and 400 percent of the Federal Poverty Level (FPL);
- Cost sharing reduction in the exchange for qualified individuals at or below 250 percent of FPL; and
- Small business tax credits.
The components of the ACA that may be waived under a State Innovation Wavier are obviously very significant, thus some very substantial conditions must be met before the federal government may approve a waiver. First, the proposed coverage under the state waiver must provide coverage that is at least as comprehensive as the essential health benefits offered through the health insurance exchanges. Second, individuals will not pay more for coverage than they would have through the exchange/marketplace. Next coverage must be made available to at least as many people who would have received coverage under the federal exchange/marketplace approach. Finally, the plan proposed under the waiver may not increase the federal deficit.
Final rules were issued February 22, 2012, that outline the process for applying for and obtaining a State Innovation Waiver. The rules include requirements for public notice and comment, the contents for the application, and the federal review process. The waiver application needs to identify; 1) what is being waived and why; 2) how to meet the four waiver requirements; 3) actuarial justification; 4) 10-year budget plan; 5) how the waiver will impact the state’s health insurance; 6) provide state legislation authority necessary to pursue the waiver; and 7) a detailed implementation plan.
The ACA also includes a provision that allows for federal coordination and consolidation of the State Innovation Waiver process with waiver processes for Medicaid, Medicare, the Children’s Health Insurance program, or other federal laws relating to provisions of health care services. This can give states the opportunity to design new approaches to a health insurance continuum that streamlines the application for premium assistance and the process for enrolling in the selected health insurance option.
Why would state policy makers consider a State Innovation Waiver? State Innovation Waivers are appealing because they could address many different objectives including:
- Reduce churning between the health insurance programs as situations change;
- Eliminate stratification where different family members are in different programs;
- Remove the inequity of the employee-only Employer Sponsored Insurance affordability test (often referred to as the “family glitch”);
- Decrease the incentive for employers with disproportionate numbers of low-income employees to drop coverage;
- Improve technology, operations and communication linkages and hand-offs; and
- Substitute a state-designed operational design instead of the ACA top-down design to achieve policies such as greater beneficiary financial participation and incentives for healthy behavior.
State policy makers have begun the process of examining waivers. The earliest attempt at a State Innovation Waiver came from Vermont which intended to use the waiver for a single payer health insurance system. The attempt was abandoned, at least in part, because the four waiver conditions could not all be met.
A number of states have also initiated discussions about the potential use of the waiver. In most cases, the states’ objectives are limited in scope. As an example, Hawaii submitted a waiver application to waive the SHOP exchange requirement for the state-based insurance marketplace (exchange.) A handful of states are looking at the waiver as a way of creating consistent definitions and smoothing the coverage changes as individuals move from one insurance program to another.
Recently, the National Governors Association sent a letter to Secretaries Burwell (HHS) and Lew (Treasury,) urging the federal government to provide guidance and flexibility to states so they might pursue State Innovation Waivers. The National Association of Insurance Commissioners (“NAIC”) has held meetings on the topic and the NAIC is expected to continue the discussion at its November 2015 meeting. Whether State Innovation Waivers become part of the ACA landscape ultimately rests on whether individual states are able to meet the rather high bar set by the conditions included in the ACA and under federal rules for granting waivers.