States can take an innovative approach to health care reform through the 1332 waiver, which is a provision of the Affordable Care Act. States were allowed to use these waivers from the year 2017 and till mid-2020, 23 states had submitted 1332 waiver proposals to the federal government for consideration. The 1332 proposals of 15 states have been approved and the rest are under review or have been withdrawn. In the majority of the cases, states are using the 1332 waivers to implement reinsurance programs, though these can be used even for more extensive changes provided states stick to different consumer protection guidelines.
No doubt the Affordable Care Act brought significant changes to the American health insurance systems, but still, there are more for the states to implement as per their requirements like choosing the benchmark plan that sets the requirements for essential health benefits. Thus, a state can implement various creative and distinct approaches using a 1332 waiver provided it has been approved by the federal government before implementation. The name 1332 waiver is derived from Section 1332 of the ACA that outlines how these waivers work.
The Secretary of the Department of Health and Human Services has been granted authority by the law to approve the state’s waiver proposal but the states have to meet some basic requirements. This is done to ensure that the changes made by the state will benefit consumers and they will be well protected as they would have been without the state’s 1332 waiver. The HHS also needs to ensure that the waiver will not increase the cost for the federal government. Thus to gain approval, a 1332 waiver should be designed to provide:
- Affordable health insurance coverage that people used to receive under the ACA’s regular rules.
- Comprehensive health insurance coverage that people received under the Affordable Care Act.
- There should not be any increase in the federal deficit.
- Health insurance coverage for those number of people that would be generally covered under the Affordable Care Act.
Within the above-mentioned parameters, states can make a variety of changes. However, states are not allowed to remove the ACA’s requirement that ensures health plans to be guaranteed-issue and offering coverage for pre-existing conditions.
Obama Administration Regulations
Under the Obama administration in the year 2015, HHS finalized guidelines for the states, which they would require to fulfill to comply with the four provisions of the waiver proposal. According to the HHS rules “coverage” meant minimum essential coverage and does not include temporary plans such as short-term plans, fixed indemnity plans, limited benefit plans, health care sharing ministry plans, etc. However, all ACA-compliant off-exchange major medical plans sold outside the health insurance exchanges were included. For some less effective employer-sponsored plans that do not provide minimum value but were counted as offering minimum essential coverage, the HHS rule ensured that a 1332 waiver proposal will only be approved if the employer would not reduce the number of people having coverage under a plan that has an actuarial value of at least 60%.
The HHS rule also clarified that a state’s 1332 waiver proposal will only be approved if it would not reduce the number of people having comprehensive health coverage compared to the state’s benchmark plan for essential health benefits.
The 2015 regulations for 1332 waivers merged health insurance premiums and cost-sharing like copays, deductibles, and coinsurance, and health care expenses that are not covered by a plan for affordability. If any of these get affected due to the waiver proposal, then the waiver could not be approved because it would have resulted in affordability. By merging premiums and cost-sharing while determining affordability, the HHS rule ensured that a state will not be able to use this waiver to develop a system based on cheaper health coverage offering less robust benefits when a person will require medical care.
While evaluating a state’s waiver proposal, the Obama administration’s guidance also ensured that HHS will not only take account of the overall impact on all state residents but should also take care of the impact on the vulnerable population including elderly residents, low-income residents, and residents with serious health conditions. A waiver proposal could not gain approval if it would harm the vulnerable population, even if the impact on the overall population would be neutral.
Trump Administration Revisions
HHS under the Trump administration in the year 2018 issued new guidelines for 1332 waivers. As per the new rule, the 1332 waivers were referred to as “State Relief and Empowerment Waivers” and it relaxes several requirements that were put in the place by the earlier administration. Under the new rule, the coverage was redefined to include health plans that were considered inadequate by the prior administration like short-term plans and association health plans. As per the revised rule, the waiver can potentially be used by the states to create additional opportunities for offering more affordable and flexible coverage that the Administration opened through expanded options for short-term plans and Association Health Plans. To make both these types of coverage available and easier to use as an alternative for the major medical plan, the guidance was previously issued by the Trump administration.
Thus under the new rule, a state’s proposal could be approved, even if it would lead to an increase in the number of members of short-term plans and a decrease in the number of members of major medical plans, until and unless the total number of people having any of this coverage would not decrease. The new rule diverted from looking at the number of people having affordable comprehensive coverage, and instead allowed a proposal to be evaluated based on the availability of affordable, comprehensive coverage, even if some people have to move to less comprehensive and less affordable coverage under the waiver.
The 2018 rule also removes the requirement that a waiver proposal would be evaluated considering its impact on the vulnerable populations, instead it asks HHS to evaluate the proposal’s impact on the total population. Even the four guardrail rules, imposed by the Obama administration, that required a waiver to comply with were relaxed by the Trump administration. If a waiver proposal complies with the relaxed guardrails for its given life, then it can be approved even if it is expected to foul with one or more guardrails. The 2018 rule made it easier for the state to get a waiver proposal approved, whereas, under the ACA, states would have to enact legislation to authorize and implement a waiver, but as per the new rule states were allowed to use the existing legislation along with a state regulation or executive order.
Similarities in HHS Rule under both the Administration
Both the administration ensured that a state’s waiver proposal can only be approved if it will not increase the federal deficit. States are allowed to add their funding to enhance health benefits or affordability but the federal government cannot be expected to spend more amount in the state than they would have without the waiver. After the finalization of the new guidelines, the Centers for Medicare and Medicaid Services (CMS) published an overview of 1332 waivers for the states. This was done to ensure that states can make effort to use the new waiver flexibility to implement innovative changes for their health insurance markets.
How Are States Using 1332 Waivers?
By 2020 only 14 states have implemented reinsurance programs by using 1332 waivers and Pennsylvania and New Hampshire have received federal approval for 1332 waivers to create reinsurance programs in 2021. besides, Hawaii has an active 1332 waiver that will allow the state to avoid having an ACA created small business health insurance exchange. Though the 1332 waiver cannot increase the federal deficit, but if a state’s waiver results in the federal government spending less money in the state, the state can recover the savings and use the amount to fund their health care program,
As of now, 15 states have leveraged 1332 waivers to set up reinsurance programs that help to lower health insurance premiums, and even the subsidies paid by the federal government get reduced too. As per the reinsurance, the Federal government is not allowed to keep the savings and it is passed to the state that is known as pass-through funding. The state can then use that fund along with its revenue to pay for the reinsurance program.