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New guidance on State Innovation Waivers under Section 1332

States' options increased

On October 22, 2018, the Centers for Medicare and Medicaid Services (CMS), the Department of Health and Human Services, and the Department of the Treasury jointly released updated guidance on State Innovation Waivers available under Section 1332 of the Affordable Care Act (ACA). The new guidance for State Innovation Waivers, renamed “State Relief and Empowerment Waivers” (SRE waivers), replaces guidance from 2015.

October 25, 2018 | Health care

The departments are providing updated guidance in the context of changes in the individual insurance markets since 2015 and as part of a larger effort to provide greater flexibility to the states. Updates to the guidance are intended to refocus the review process in an effort to advance five key principles:

  • Provide increased access to affordable private market coverage
  • Encourage sustainable spending growth
  • Foster state innovation
  • Support and empower those in need by providing access to affordable, high-value health insurance
  • Promote consumer-driven health care

The guidance is applicable beginning October 22, 2018, and is scheduled for publication in the Federal Register on October 24, 2018. Comments are due by December 24, 2018.

CMS plans to release waiver concepts “in the near future to give examples of how states can take advantage of waivers and to spur further state innovations.”

About SRE Waivers

As background, Section 1332 of the ACA permits states to apply for waivers to pursue innovative strategies that can provide their residents with access to high quality, affordable health insurance. The statute includes four requirements or “guardrails” for approval, providing that the waivers must:

  1. Provide coverage that is at least as comprehensive as would be provided absent the waiver;
  2. Provide coverage and cost sharing protections against excessive out-of-pocket spending that are at least as affordable as would be provided absent the waiver;
  3. Provide coverage to at least a comparable number of residents as would be provided absent a waiver; and
  4. Not increase the federal deficit.

Applications for 1332 waivers are subject to review by the Secretaries of HHS and the Treasury. If a 1332 waiver is approved by the secretaries, a state may receive federal pass-through funding equal to the amount of assistance that would have been available absent the waiver.

To date, eight 1332 waivers have been approved, seven of which have been for states to establish reinsurance programs for their individual insurance markets.

What changes under the new guidance

A key objective of the new guidance is to redefine and clarify how the secretaries will interpret the statutory guardrails and other statutory requirements of the 1332 waiver provision. For example, the updated guidance clarifies that in certain circumstances, a state executive branch may submit a waiver and reference any existing legislation that establishes the executive authorities needed to enforce ACA provisions to satisfy the statutory requirement that a state enact a law to pursue a 1332 waiver. The practical result of this new statutory interpretation is that state governors could be allowed to submit waiver applications directly to the federal government without direct legislative approval.

In addition, the updated guidance generally provides for the departments to evaluate the comprehensiveness and affordability guardrails in terms of:

  • The aggregate effects of the waiver, rather than on the specific impact on particular groups of residents
  • The availability of comprehensive and affordable coverage, rather than on the number of state residents actually receiving comprehensive and affordable coverage

The departments say the change in focus will ensure that individuals who want to retain coverage that meets the ACA requirements will be able to do so, while also providing access to other health insurance options.

Other key details of the updated guidance are highlighted below.

Comprehensiveness

The updated guidance takes into account the greater flexibility CMS provided to states in April 2018 to select the benchmark plan to determine whether the ACA’s essential health benefits (EHB) package is met. The departments will evaluate comprehensiveness by comparing access to coverage under the waiver to the state’s EHB benchmark plan selected by the state for the plan year, any other state’s benchmark plan chosen by the state for purposes of the waiver application, or “any benchmark plan chosen by the state that the state could otherwise build that could potentially become their EHB-benchmark plan.”

Affordability

The updated guidance provides for the departments to take into account the magnitude of changes to the affordability of comprehensive health coverage for state residents, as well as the number of state residents for whom comprehensive coverage has become more or less affordable.

The updated guidance provides an example explaining that a waiver that makes coverage slightly more affordable for some people but much less affordable for a comparable number of people would be much less likely to get approved than a waiver that makes coverage substantially more affordable for some people without making others substantially worse off.

Nevertheless, the guidance makes clear that it will consider how any proposed changes are likely to impact low-income and high-cost individuals.

Number of state residents covered

In evaluating whether a 1332 waiver would provide for a comparable number of residents to have meaningful health coverage as would absent the waiver, the updated guidance provides that the departments will consider all forms of coverage, including association health plans (AHPs) and short-term limited-duration insurance (STLDI) plans.

The guidance also allows for a reasonable interim period where coverage levels decrease as markets respond to rule changes.

Deficit neutrality

Under the deficit neutrality requirement, projected federal spending net of federal revenues under the 1332 waiver must be equal to or lower than projected federal spending net of federal revenue in the absence of the waiver. The guidance provides that the estimated effect on federal revenue include all changes in income, payroll, or excise tax revenue, as well as any other forms of revenue.

Restating the previous guidance, the update explains that estimated effects “would include, for example, changes in amounts the federal government pays in premium tax credits (PTC) and small business tax credits; changes in the amount of employer shared responsibility payments and excise taxes on high-cost employer-sponsored plans collected by the federal government; and changes in income and payroll taxes resulting from changes in tax exclusions for employer-sponsored insurance and in deductions for medical expenses.”

The guidance also states that projected federal spending includes all administrative costs of the federal government, including any changes in Internal Revenue Service and federal exchange administrative costs. This provision opens up the possibility of redirecting subsidies through a state’s tax system, or eliminating a state’s government-sponsored exchange in favor of independent, health system, or plan-sponsored enrollment platforms.

Operational considerations

The updated guidance states that technical updates to the federal Healthcare.gov platform will support greater variation and flexibility for states that may want to leverage components of the federal platform to implement new models through 1332 waivers. CMS had previously stated that the federal platform could not support different eligibility and enrollment rules for different states.

Contact us

Anne Phelps
Principal

Deloitte Risk and Financial Advisory
US Health Care Regulatory leader
Deloitte & Touche LLP
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Daniel Esquibel
Senior manager

Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

 

Ethan Joselow
Manager

Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

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