Trending: Preparing for 1332 State Innovation Waivers: Will They Help or Harm?

Update 1/15/2015: Consumer advocates should weigh in on new Section 1332 guidance from CMS

next big debate over the Affordable Care Act is looming. States are already planning for changes they’d like to make to the ACA using the new 1332 state innovation waivers. Beginning in 2017, the ACA permits states to apply for waivers to begin experimenting with strategies to provide residents with access to high-quality, affordable health insurance. But whether these new strategies will be helpful or harmful is still anyone’s guess.

What is a Section 1332 State Innovation Waiver?

Under a Section 1332 State Innovation Waiver, states can get permission from the federal government to divert funding that helps residents afford health insurance–-such as premium tax credits and cost-sharing reductions—and use it to make broad changes to health insurance or health delivery systems.

Although 2017 may seem far away, some states are beginning to plan for those experiments now and will be submitting their waiver applications to the federal government for approval in the next year. States could propose innovations that will lead to more people gaining coverage. Or they could propose system changes that would make it more difficult for low- and middle-income people to get access to decent, affordable care.

Health policy expert and Families USA board member John McDonough of Harvard University has described 1332 waivers as a “broad statutory invitation for states to consider many sorts of unprecedented changes to health care policy within their borders.”

That’s why we are calling on consumer advocates, states, and the federal government to watch this process carefully and make sure adequate guardrails are in place to protect consumers.

What aspects of the Affordable Care Act can states change under a 1332 waiver?

Under a 1332 waiver, states can ask the federal government for permission to change or ignore major elements of the ACA. For example, states could decide to:

• Change the requirements for health plans to offer essential benefits at bronze, silver, gold and/or platinum metals
• Stop using health insurance marketplaces or change the way marketplaces operate
• Offer alternative ways to help residents afford coverage instead of providing them with premium tax credits and financial assistance for out-of-pocket costs
• Change or eliminate the employer shared responsibility provisions (also known as the employer mandate) that require large employers to offer affordable coverage to employees or pay a tax penalty if they don’t
• Change or eliminate the individual shared responsibility provision (individual mandate) that requires individuals to obtain coverage (unless they have a hardship) or pay a tax penalty if they don’t
• Alter or eliminate the tax penalties for large employers who don’t cover their workers and for individuals who go without coverage

Will 1332 waivers affect Medicaid or Medicare?

These 1332 waivers apply only to the marketplace, not other programs like Medicare and Medicaid. States can, however, seek multiple waivers from CMS at the same time. For example, they might ask permission to change their Medicaid programs under a 1115 waiver and their marketplace coverage under a 1332 waiver. This could result in a state coverage experiment affecting people at all income levels.

Of course, states will also have to propose innovations that are practical to administer. Thus, altering how federal taxes apply in one state, for example, may prove a challenge.

The process for submitting 1332 waiver applications

To implement a 1332 waiver, states must enact legislation. For a good summary of the waiver application process, consult the Frequently Asked Questions (FAQs) compiled by CMS. For example, states must submit detailed analyses showing that the waiver includes various consumer protections (described below) and that it will be “deficit neutral” to the federal government.

Visit the CMS page for their overview of 1332 state innovation waivers.

Concerns about consumer protections under 1332 waivers

State innovation waivers are supposed to protect consumers’ access to high-quality, affordable health insurance, not weaken it. Under the ACA, the state must show, that, with a waiver:

• Coverage is at least as comprehensive as it would be without the waiver
• Coverage is as affordable to residents as it would be without the waiver
• A comparable number of residents will be covered as would be under the ACA without the waiver

While these protections are important, questions remain about how states and the federal government will interpret each of these standards. These are just some of the questions we have about 1332 waivers:

• Will the benefits be at least as comprehensive for consumers with various high-cost health care needs, or will benefits be comprehensive only for consumers with more “typical” health care needs?
• Will coverage be as affordable to each income group that now receives help with health care costs under the ACA? Will coverage be affordable for people who are currently eligible for cost-sharing reductions?
• How will states determine how many people the waiver will cover and how many people would have been covered without it?

The public should watch the waiver process to ensure that access to affordable health coverage is protected

Fortunately, the public has an important role to play in commenting on any waiver applications before and after they are submitted to the federal government. While some broad standards for waivers are already in place, additional standards could help ensure that:

• Coverage remains affordable to people at lower income levels,
• Benefits are adequate for people with various health care needs, and
• The public has adequate information to meaningfully comment on a waiver application.

Families USA will be watching these applications too, and we want to make sure that both states and the federal government have enough guideposts in place to protect people’s coverage.