States Use HIFA Waivers to Expand Private Insurance

Published February 1, 2003

Waivers granted through the Health Insurance Flexibility and Accountability (HIFA) initiative give state officials an opportunity to expand health care coverage to the uninsured and help individuals and families escape crumbling public health programs such as Medicaid. State officials should seize the opportunity to offer private health care coverage options to these populations.

Utilizing HIFA waivers will not only bring immediate benefits to those who receive coverage, but also will promote the longer-term goal of improving the efficiency and effectiveness of the nation’s health care system.

The HIFA Initiative

The HIFA initiative, announced by Health and Human Services (HHS) Secretary Tommy Thompson in 2001, is based on the Medicaid and State Children’s Health Insurance Program (SCHIP) Section 1115 waivers. The HIFA program gives states the flexibility to design innovative approaches to increase health care coverage for the uninsured by using existing Medicaid and SCHIP resources.

HHS guidelines and templates simplify the HIFA waiver application process for state officials and ensure priority review, so waivers do not languish in the federal bureaucracy.

While states are granted broad flexibility, the administration emphasizes several features it is looking for in waiver applications. The HIFA guidance states:

The Administration puts a particular emphasis on broad statewide approaches that maximize private health insurance coverage options and target Medicaid and SCHIP resources to populations with income below 200 percent of the Federal poverty level.

State officials should pay particular attention to the private coverage preference: A decision simply to expand conventional public health care programs, such as Medicaid, will escalate costs to taxpayers and reduce rather than increase access to quality care for low-income individuals and families.

Progress through HIFA

HHS has approved seven HIFA demonstration waivers. While none has achieved an ideal plan, all of the states have incorporated private coverage elements in their projects.

The Illinois demonstration, for example, covers 300,000 residents with incomes at or below 185 percent of the federal poverty level (FPL). It expands coverage to parents of Medicaid and SCHIP children and strengthens its hemophilia and uninsurable programs. Under the demonstration project, some individuals will receive premium assistance to help them purchase coverage through their employer instead of receiving direct state coverage.

The Maine demonstration expands coverage to 11,500 childless adults by building on the state’s private insurance premium program and utilizing employer-sponsored coverage for qualified individuals.

Oregon‘s demonstration expands enrollment in the state’s premium assistance program for employer-based coverage and, in some cases, individual policies, to cover 60,000 residents with incomes up to 185 percent of FPL. It targets uninsured individuals, including pregnant women, low-income children, parents of Medicaid and SCHIP children, and childless adults.

New Mexico expands coverage to 40,000 adults with incomes at or below 200 percent of FPL by contracting with insurers to provide a state-designed benefit package for employers to offer their low-income, uninsured workers. It targets parents of Medicaid and SCHIP children and childless adults.

Arizona expands coverage to childless adults, and both Arizona and California expand coverage to parents with children enrolled in their state Medicaid or SCHIP programs and call for feasibility studies on integrating employer coverage into their proposals. HHS has indicated it will help ensure these states incorporate private coverage by offering technical assistance to them to meet this requirement.

In a two-phase demonstration, Colorado expands coverage to uninsured pregnant women with incomes up to 185 percent of FPL and to low-income children and adults. It also plans to develop an employer-based coverage component for the second-phase group.

What State Officials Should Do

While these waivers do coordinate with private coverage, other states interested in pursuing a HIFA waiver should be more aggressive in emphasizing and advancing private health insurance options. Specifically, they should:

  • Offer existing Medicaid/SCHIP beneficiaries a premium assistance option for private health coverage. Declining access to quality care is becoming a growing problem under Medicaid. States should utilize the HIFA waiver to allow enrollees to change from state-sponsored coverage to a private coverage option of their own choosing. Mainstreaming certain Medicaid and SCHIP populations into private coverage will also help ease the obligations on state-provided coverage and improve the quality of care for the truly indigent who must receive coverage through the state.
  • Allow premium assistance to be applied to all types of private coverage. States should permit individuals who receive premium assistance in lieu of state coverage to apply that assistance to their coverage of choice. While employer-sponsored coverage may be a likely choice, it should not be the only or required option. States should use the HIFA waiver to promote choice and give individuals the freedom to use premium assistance for all types of private coverage, including policies purchased on the individual market.


The Bush administration’s innovative HIFA initiative gives states the flexibility to expand coverage to the uninsured by integrating private coverage options with traditional Medicaid and SCHIP programs. States can also use this opportunity to strengthen those programs.

Building on the progress achieved through welfare reform, states can mainstream individuals and families out of poorly performing public health programs and help them secure private coverage. Such efforts would immediately benefit the individuals and families directly involved, and would also be compatible with the longer-term goal of giving low-income individuals and families federal assistance to purchase private health care coverage.

Nina Owcharenko is a policy analyst at The Heritage Foundation. Derek Hunter, research assistant at The Heritage Foundation, contributed to this report, originally published by The Heritage Foundation on December 13, 2002.