In June, Iowa submitted an ambitious and wide-ranging Section 1332 waiver that would replace the Affordable Care Act’s (ACA) premium tax credits with two new mechanisms: a state-administered tax credit and a reinsurance program. Section 1332 of the Affordable Care Act allows states that meet several conditions to waive certain key provisions of the ACA. To obtain a section 1332 waiver, a governor must first gain approval from the state legislature and then from the U.S. Department of Health and Human Services (HHS).
These waivers are limited under the ACA; HHS can only approve a request if the number of people covered under the waiver is the same or better as the ACA and only if the requested change offers comprehensive coverage at a comparable or better affordability.
There are a few additional important restrictions on this process. For instance, states cannot waive many of ACA’s market protections, such as the ban on excluding people with pre-existing conditions.
Iowa’s new proposed plan, known as the Iowa Stopgap Measure, requests a waiver from HHS to allow the state to use the estimated federal spending on ACA premium tax credits in 2018, about $304 million, on new state tax-credit and reinsurance programs. The Stopgap Measure would split the $304 million between the two programs: $220 million would be used to fund the state’s premium tax credits and $80 million would be used for the state’s reinsurance program.
Under the proposed waiver, the state premium tax credits would be age- and income-adjusted, but would not be not adjusted for premium increases or differences across rating areas, as they currently are under the ACA. The state revenue department would determine an individual’s eligibility and level of subsidy, not the federal exchange. The waiver would also allow people earning more than 400 percent of the federal poverty level to be eligible for premium subsidies, and cost-sharing subsidies would be provided to people with incomes from 138 percent to 250 percent of the federal poverty level.
The new credits and their age and income variations will likely favor younger and higher-income individuals (compared to the ACA’s rules), but the waiver’s supporters argue the current state of the Iowa exchange makes the changes necessary to keep the status quo. According to Modern Healthcare, Iowa’s insurance commissioner, Doug Ommen, argued in an interview the proposed reshuffle of federal subsidy dollars is necessary to keep healthier people in the risk pool and make premiums more affordable for Iowans of all income levels. According to the Des Moines Register, Wellmark BlueCross BlueShield has said that it would return to the individual market if the plan is approved.
According to an analysis by Manatt, Phelps, and Phillips, a law firm, the authors of the waiver are aware that some of the changes requested in the Stopgap Measure may not comply with the Obama administration’s limits on 1332 waivers which were added by HHS in 2015, but the waiver argues the changes must be approved because Iowa is now in a state of emergency, as the state’s individual health insurance market is near collapse. Iowa currently only has one insurer offering ACA-compliant plans: Minnesota-based Medica, which plans an average statewide rate increase of 43 percent for 2018. The state calls its unorthodox request “emergency regulatory relief,” which it says would only be for a one-year period.
The state’s premium tax credits would be used by consumers to purchase the state-defined Silver Plan, which would be available on a guaranteed-issue basis and would include all the federal government’s defined “essential health benefits” and no limits. Both grandfathered and grandmothered transitional plans could continue to be offered by insurers. The remainder of the funds used in the waiver would be used to set up a reinsurance program to protect insurers that sign up high-cost enrollees.
A governor can only request a Section 1332 waiver that has been authorized by his or her state legislature. States must engage in a transparent public process when requesting a waiver, including publicizing requests on state websites, holding hearings, and collecting comments. Additionally, the waiver cannot be projected to increase the federal deficit.
Some reforms states can submit to the HHS secretary through 1332 waivers include:
- Ending the individual mandate, which includes a penalty or fine for not buying health insurance.
- Ending the employer mandate, which requires all businesses with 50 or more full-time- equivalent employees to provide health insurance for their employees or else pay a fee.
- Allowing cost-sharing mechanisms, such as co-pays, premiums, or health savings accounts.
- Redefining which services are considered essential health benefits—benefits all plans must cover under ACA.
- Ending the requirement insurance plans cap annual out-of-pocket spending.
- Change the rules regarding actuarial value, a measure of the percentage of expected health care costs a specific health plan will cover for the “standard” population.
Iowa’s waiver proposal is far from perfect. However, it does illustrate well the desperate situations that have been created by the ACA in many states and the ability of the waiver process to address these problems by giving states the flexibility to change their health care system.
HHS and the Trump administration have called on lawmakers to submit waivers and push for ACA reform in their states. Other states should not wait until their health care markets are on the verge of collapse before they submit waivers to take back control of their health care markets from the federal government.
The following documents examine Medicaid reform and the waiver process in greater detail.
Iowa Submits Sweeping 1332 Waiver Seeking Emergency Relief
Joel S. Ario, Chiquita Brooks-LaSure, and Adam M. Finkelstein of Manatt, Phelps, and Phillips examine the current details of Iowa’s Stopgap Measure 1332 waiver and the changes it proposes.
Innovation Waivers: State Options and Legislation Related to the ACA Health Law
The National Conference of State Legislatures examines the Section 1332 waiver process and outlines how states can use the waiver to reform the Affordable Care Act within their states.
States Watch Iowa’s Push to Reshape Health Law
Anna Wilde Mathews, Michelle Hackman, and Stephanie Armour of The Wall Street Journal examine Iowa’s proposed 1332 waiver and other states’ close monitoring of its progress. “Other states say they are considering similarly broad waiver requests for the future. Ohio is eyeing a proposal that would pare back a central [Affordable Care Act] requirement that most people purchase health insurance or pay a penalty. Oklahoma, which has submitted a limited request to set up a reinsurance program, is crafting a broader proposal that would, among other changes, reduce the number of health benefits that insurance plans must cover,” the authors wrote.
How States Are Addressing Uncertainty with 1332 Waivers
Writing for the Health Affairs Blog, Heather Howard and Dan Meuse discuss how several states are using 1332 waivers to address the issue of stability in their individual health insurance markets.
The ACA’s Section 1332 Waivers: Will We See More State Innovation in Health Care Reform?
In this article for the NIHCM Foundation, Joel Ario, managing director of Manatt Health, argues 1332 waivers offer states an important opportunity to customize their health care systems. Ario argues although the Obama administration slowed these reforms, the current administration could change course.
Section 1332 State Innovation Waivers: Current Status and Potential Changes
This Issue Brief from the Kaiser Family Foundation provides an overview of what Section 1332 Medicaid waivers are, how they are approved and financed, how states have used them, and how they have impacted health care reform.
State ACA Waivers: A Bipartisan Solution
Joel M. Zinberg of the American Enterprise Institute discusses how state Affordable Care Act (ACA) waivers could be used by the states to enact reforms in a way that has bipartisan approval. “State Innovation Waivers are one of the few ACA policies with bipartisan support. They give states considerable flexibility in deciding how to achieve the ACA’s goals of expanding access to affordable care within their borders. Allowing states to experiment with different approaches will create a natural laboratory in which to assess what works and what does not,” wrote Zinberg.
Wyden’s Waiver: State Innovation on Steroids
John E. McDonough writes in the Journal of Health Politics, Policy, and Law about 1332 waivers and their potential to institute a wide array of state-based health-sector innovations, which he argues could come from both ends of the political spectrum.
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