On Monday, October 22, 2018 the Departments of Health and Human Services (HHS) and the Treasury issued new guidance pertaining to state waivers under Section 1332 of the Patient Protection and Affordable Care Act (PPACA). Section 1332 waivers (formerly “State Innovation Waivers” and now “State Relief and Empowerment Waivers”) allow states to apply for waivers for specific ACA health care plan requirements. Under the terms of the PPACA, the HHS Secretary can request waivers only if the State plan (a) would provide equally or more comprehensive coverage as that offered through the exchanges, (b) would equally protect against “excessive out-of-pocket spending,” (c) would provide coverage to a “comparable” number of state residents, and (d) would not increase the federal deficit. Guidance issued in 2015 expounded on the statutory requirements of Section 1332, defining the words “coverage,” “affordability,” and “comprehensiveness.” The guidance issued on October 22 seeks to undo the “significant restrictions” placed on states by the 2015 guidance on meeting the four “guardrails” imposed by the PPACA. The new guidelines impact the process of obtaining a Section 1332 waiver in a number of significant ways, two of which are considered below.
Waivers may be granted if they provide less comprehensive or affordable coverage, as long as individuals still have some access to comprehensive and affordable coverage.
These guidelines seek to shift the focus of sub-section (a) from the “number of individuals actually estimated to receive comprehensive and affordable coverage” to the “availability of comprehensive and affordable coverage.” This shift in the interpretation of Section 1332 has garnered the most media attention, as well as a strong response from Senate Democrats.
The guidance explicitly advances the possibility of using Section 1332 waivers for Association Health Plans (AHP) and short-term, limited-duration insurance (STLDI). The Trump administration has been expanding the availability of these short-term healthcare plans. Whereas they were previously limited to three months, they are now available to customers for up to twelve months, and are renewable for subsequent years. Both types of insurance plans are exempt from many of the requirements under the PPACA. Neither is required to provide all ten categories of essential health benefits (such as maternity care or mental health benefits), and both can have greater price differences between older and younger customers. In addition, STLDI plans can turn down or hike premiums for applicants with certain health conditions, as well as excluding coverage for pre-existing conditions. Commentators have noted that while the availability of this type of coverage could encourage some uninsured Americans to buy health insurance, it could drive healthy consumers away from the other ACA plans, thereby increasing premiums. Senate Minority Leader Chuck Schumer accused the administration of planning “to use taxpayer dollars to fund junk insurance plans that don’t cover pre-existing conditions, which could lead to medical bankruptcy for many American families in order to pad the pockets of health insurance executives.”
Waivers may be granted even if they fail to serve specific sub-populations of residents or fail to meet or increase coverage in the short-term.
The 2015 guidance explained that an examination of whether a waiver proposal covered a “comparable number” of residents would take into account the effects on sub-populations of state residents, especially “vulnerable residents, including low-income individuals, elderly individuals, and those with serious health issues or who have a greater risk of developing serious health issues.” The new guidelines, in contrast, focus on the aggregate effects of the waiver. Under the new interpretation of Section 1332, waivers may be issued for plans that lead to “small detrimental effects for particular residents” if such effects are offset by overall improvements for state residents.
The new rules also deviate significantly from the timeline for the coverage requirement in the 2015 guidance. Previously, coverage had to be forecast to be available to at least as many state residents “in each year that the waiver would be in effect.” Under this administration’s interpretation, a waver may be provided “even where a state expects a temporary reduction in coverage but can demonstrate that the reduction is reasonable under the circumstances, and that the innovations will produce longer-term increases in the number of state residents who have coverage…” This offers states a much higher degree of flexibility.
As of now, eight states have obtained Section 1332 waivers under the previous guidance. In response to perceived damage to state health care markets, the Heritage Foundation published a paper in September 2018 analyzing market stabilization in these states and pushing for rescission of the Obama-era Section 1332 guidance. The effects of the new guidance remain to be seen. Though no states have applied, Center for Medicaid & Medicare Services (CMS) Administrator Seema Verma suggested to reporters that “several states” had already begun to investigate how to make changes under the new rules.
The dramatically different interpretation of Section 1332 advanced by the current administration raises serious questions about the use of guidance documents to make new rules, a topic that has recently received serious scholarly attention. Two Senate committees previously advanced legislative changes to address similar issues, which subsequently stalled. Critics have debated just how much the guidance document’s “interpretation” of this section deviates from the “plain text” of the PPACA, something that may come to be challenged in court. The effects of the new guidance may not start to be evident until 2020, as waiver approvals will likely take time.