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CMS provides states with ideas for ACA waivers

Move follows recent update to guidance reinterpreting waiver rules

New State Empowerment and Relief Waiver Concepts identify several preferred avenues for states to pursue in reshaping their individual insurance markets using the Affordable Care Act (ACA) dollars.

November 29, 2018 | Health care

On November 29, 2018, the Centers for Medicare and Medicaid Services (CMS) released a fact sheet outlining four waiver concepts for states to consider as potential models as they pursue changes to certain approaches to individual insurance market reform under the ACA.

The waiver concepts provide illustrative examples that expand on October guidance issued jointly by the Department of Health and Human Services, and the Department of the Treasury that reinterprets 2015 guidance on State Innovation Waivers available under Section 1332 of the ACA. Under the new guidance, State Innovation Waivers, are referred to as “State Relief and Empowerment Waivers” (SRE waivers). For further discussion, see the October RegPulse blog on the waiver guidance.

About SRE/1332 Waivers

As background, Section 1332 of the ACA permits states to apply for waivers to pursue alternative strategies that can provide residents with access to 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.

The departments’ guidance emerges in the context of changes in the individual insurance markets since 2015 and is part of a larger effort to provide greater flexibility to the states. To that end, the updated guidance refocuses the federal review process 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

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

About the new SRE/1332 waiver concepts

In the introduction to the concepts, CMS states that “As with all waiver requests, a state must ensure that the waiver plan meets the four statutory guardrails relating to comprehensiveness, affordability, coverage, and federal deficit neutrality. Nothing in the new guidance or the waiver concepts changes the requirements for health insurance issuers to provide protections for people with pre-existing conditions.” CMS states that “The waiver concepts are offered to spur innovative ideas that can be utilized by individual states to improve their health care markets.” Within those parameters, CMS proposes four distinct waiver concepts for states to pursue.

Account-based subsidies

As part of the administration’s larger push towards consumer-directed care, the concept paper proposes that states seek waivers to direct federal premium tax credit funds into individual defined contribution accounts that could be used for health insurance premiums or other health care expenses. In addition, individuals could elect to fund these accounts from other sources, like an employer or their own contributions. The fact sheet states that the account funds could go to purchasing a higher deductible plan with lower premiums.

SRE account-based subsidies differ from recent proposed rulemaking on Health Reimbursement Arrangements, where an employer funds an account with pre-tax dollars, with the requirement that an employee purchases an ACA-compliant plan.

State-specific premium assistance

The new waiver guidance’s reinterpretation of SRE/1332 waiver guardrails would allow states to redesign the ACA’s standard structure for income-based premium assistance “in order to provide more affordable health care options to a wider range of individuals, attract young and healthy consumers into the market, or to address structural issues that create perverse incentives, such as the subsidy cliff.” The “subsidy cliff” refers to the ACA’s cap on premium tax credits for individuals or households whose Modified Adjusted Gross Income is at or below 400 percent of the Federal Poverty Level.

Adjusted plan options

The waiver concept fact sheet suggests that states may elect to pursue waivers that would allow federal subsidies to go towards non-Qualified Health Plans such as short-term limited duration coverage. The fact sheet notes that an adjusted plan option waiver could be combined with an account-based approach to allow consumers to purchase coverage or pay for health care directly.

Risk stabilization strategies

The fourth proposal is largely a reiteration of prior guidance that allowed federal subsidies to be redirected towards reinsurance, high-risk pools or other risk stabilization approaches. Presently, the majority of approved 1332 waivers have been for reinsurance programs that are funded at least in part by the projected reduction in federal premium tax credits, known as “pass-through” funding.

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.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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Anne Phelps
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Deloitte Risk and Financial Advisory
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