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Are State Innovation Waivers the Future of Health Care Reform?

Beginning in 2017, states will be able to apply for waivers for flexibility in implementing many of the Affordable Care Act’s key requirements — an opportunity that some see as a catalyst for health reform.

The promise of broad flexibility under such waivers could be particularly appealing to states that have been reluctant to back the ACA and its requirements. In fact, some stakeholders argue that such waivers should be made available as early as this year so states can begin making progress.

However, not everyone is as enthusiastic. A recent report by the Center on Budget and Policy Priorities states, “Considerable uncertainty surrounds the potential scope of the ‘waivers for state innovation,'” adding that alternatives under such waivers could “represent a significant departure from the ACA’s standards and requirements.”

What States Can and Cannot Do Under Section 1332

Section 1332 of the ACA allows states to “request that the federal government waive basically every major coverage component” of the law, a Health Affairs blog post says, but it also notes that the provision does not “exempt states from accomplishing the aims of the ACA.” Instead, it gives states “the ability (and responsibility) to fulfill the aims in a different manner while staying between certain guardrails.”

Under section 1332, states can ask the HHS secretary to waive certain ACA provisions, including those related to:

  • Federal health subsidies;
  • Health insurance marketplaces;
  • The individual mandate; and
  • Shared responsibility requirements for employers with 50 or more full-time workers.

At the same time, states applying for such a waiver must:

  • Ensure a comparable insured rate as would be expected under the law;
  • Ensure that health coverage provides benefits that are equal to or greater than the “essential health benefits” under the ACA;
  • Provide cost-sharing protections to make coverage just as affordable as it would be under the ACA; and
  • Prove their plan will not increase the federal deficit.

The waivers cannot be used to exempt states from the ACA’s risk adjustment program or limitations on how much insurers can charge based on beneficiaries’ ages. In addition, states will not be able to use the waivers to extend eligibility for Medicaid or Children’s Health Insurance Programs. However, they can request a separate waiver under section 1115 of the Social Security Act to make changes to those programs in conjunction with a section 1332 waiver.

So far, HHS and the Department of the Treasury have issued only general guidance on the application and reporting processes for these so-called “state innovation waivers.”

How States Could Use Waivers To Implement Reform

States could use the waivers to veer from the ACA’s requirements and implement their own health reform plans “in ways that better reflect their policy goals, state demographics, budgetary constraints and political culture,” according to Bruce Caswell, president of MAXIMUS, a firm that provides business process services to government health and human services agencies.

For instance, the CBPP report notes that states could use the waiver “to add a ‘public option’ under which the state would offer its own plan in the marketplace to compete with private plans” or to offer “an alternative health insurance affordability program for people with incomes too high for Medicaid.”

Caswell notes that the section 1332 waivers “are sufficiently broad to attract interest among a diverse array of states.”

Here’s a run-down of states that are pursuing section 1332 waivers.

  • Hawaii officials considered pursuing a waiver under section 1332 to circumvent the ACA’s shared responsibility requirement for certain employers and instead retain the state’s rule that all employers must provide health insurance to workers.
  • New Mexico lawmakers are considering a bill that would create a task force to determine how the state could use federal subsidy funding under a section 1332 waiver.
  • Vermont officials have indicated that they plan to apply for a section 1332 waiver in order to implement the country’s first single-payer health system.
  • Arkansas and Minnesota also are considering waiver applications.

Moving Forward

Section 1332 has “the potential to give states flexibility to alter certain provisions of health reform,” according to the CBPP report. However, the report notes that the “waivers are limited in scope” of what they allow.

It adds that “[a]dditional federal guidance is needed to fully establish whether certain other ACA requirements and standards lie within or outside the scope of 1332 waivers.”

Stuart Butler, a senior fellow in economic studies at the Brookings Institution, in Fortune suggests speeding up the waiver process by:

  • Advancing the effective date of the waivers to 2016 or earlier; and
  • Reducing the administration’s power to “thwart” state proposals “by legislating automatic approval of categories of state approaches or by a process that makes congressional approval an alternative to an administration waiver.” 

Countering Butler’s argument, the CBPP report says that “[b]ecause 1332 waivers cannot take effect until 2017, the federal government will be better able to assess the impact of state waiver proposals on coverage, affordability and costs based on actual experience in implementing health reform.”

Caswell said, “States should be thinking now about how to take advantage of the discretionary authority available to them, and health program innovators should be engaging in discussions about the best way to take advantage of this opportunity.”

Around the Nation

Driving change. In Healthcare Finance, Austen Kirkland outlines four projects that are driving change among the nation’s hospitals.

Part-time workers lose hours. The Washington Business Journal‘s “BizBeat” highlights a survey that found nearly 20% of businesses have reduced part-time workers’ hours amid ACA implementation.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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