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Tuesday, August 8, 2017

Iowa’s Risky and Harmful 1332 Waiver Proposal

Iowa has asked the federal government to approve a proposal to make troubling changes to its marketplace that will increase coverage costs for low- and middle-income Iowans. It essentially takes federal funds intended to help people afford the cost of health insurance and uses them to pay insurance companies and to offer subsidies to relatively high-income people. The risky and harmful proposal fails to meet key requirements and should be rejected.

The waiver would increase the costs of low- and middle-income people

In an effort to stabilize its marketplace, the state wants to use a 1332 waiver to fund reinsurance payments (payments to insurers to help cover the costs of expensive patients) and support for higher-income residents. To pay for this new spending, the waiver proposal reduces support for low- and middle-income people. For many Iowans, the proposal would sharply raise both their premiums and deductibles and other out-of-pocket costs when they seek care.

This proposal is not only bad for affordability of coverage, it is risky and wasteful. It would require the state to stand up a whole new system for eligibility and enrollment in just two or three months. Building such systems took the federal government and other states several years and required hundreds of millions of dollars, and there were still big problems the first year. This poses tremendous risk that the new system will not be ready, jeopardizing or delaying coverage for everyone.

Iowa’s 1332 waiver proposal doesn’t meet the ACA’s affordability requirement

Section 1332 of the Affordable Care Act allows states to apply for waivers of significant components of the law’s individual market requirements, with the important limitation that waivers must meet four statutory guardrails as a way to prevent them from causing harm to consumers. States proposing 1332 waivers must demonstrate that, under the waiver:

  • Coverage would be at least as comprehensive,
  • Coverage and cost-sharing protections against high out-of-pocket spending would be at least as affordable,
  • At least a comparable number of residents would have coverage, and
  • The federal deficit would not increase compared to what would occur without the waiver.

While it is not clear if Iowa’s proposal meets ANY of these guardrails, it clearly fails the affordability test.

Iowa is proposing to eliminate cost-sharing reductions

In 2016, nearly 28,000 Iowans enrolled in marketplace plans received ACA cost-sharing reductions (CSRs) because they have incomes up to 250 percent of the poverty level, or about $60,000 for a family of four.

Under the state’s 1332 proposal, an individual eligible for CSRs would no longer get them. Instead they would get a regular silver plan, raising deductibles for lower-income people from hundreds of dollars a year to thousands of dollars a year – roughly $4,000 to $6,000, or even more.

The waiver would leave many low- and moderate-income people unable to afford needed health care even though they have insurance. Some people with limited incomes would likely decide it makes more sense to be uninsured.

The waiver would reduce premium tax credits for many Iowans

Currently, the tax credits that the ACA provides to help people pay their monthly premiums are not available to anyone with an income of more than 400 percent of federal poverty, or about $48,000 for an individual. Iowa proposes eliminating the income cut-off, allowing a person 55 years or older to get $117 per month (according to an example in the application) to help pay their premiums, no matter how high their income.

Because 1332 restrictions prevent a state’s 1332 waiver from adding to the federal deficit, this extra help for higher-income people would be funded by diverting the funds now available to people with lower incomes.

Diverted funds would be used for reinsurance payments

Iowa proposes using federal premium tax credit and CSR funding to provide millions of dollars in reinsurance payments to insurers. Reinsurance on its own terms has a lot to be said for it, and Alaska has found a way to pay for it that complies with 1332 waiver guardrails.

Iowa’s reinsurance funding will almost certainly fail to make up for the higher costs many Iowans will have to pay for coverage.

Under Iowa’s plan, consumers would have far less choice

The proposal would eliminate all plans other than silver plans, leaving people who want a plan with a lower premium or a plan that is more comprehensive without such options.

A final reason to oppose Iowa’s proposal: When Iowa first rushed the proposal forward, it feared there would be no insurers offering plans on its marketplace in 2018. That concern has now been addressed. Iowa now has time to develop a 1332 proposal without such negative consequences for low and middle-income people.

The proposal is currently open for public comment online via the Iowa Department of Insurance through August 13, and then will either be withdrawn, modified or submitted to the Trump Administration for potential approval.