Section 1332 Waivers: Health Insurance Market Reform
You’ve probably heard of Section 1332 waivers. But do you know what they are or how they may impact organizations, patients or health plan members?
The Department of Health and Human Services (HHS) uses waivers to test the delivery of and payment for health care services. States seeking to reform their health insurance markets were given a green light when section 1332 was built into the Patient Protection and Affordable Care Act (PPACA) in 2010.
Since these waivers have continued to transform our healthcare landscape for the past year, it’s essential to not only have a baseline understanding of these waivers, it’s equally important to monitor implications of how planned changes may affect each state.
Section 1332 introduced State Innovation Waivers, now also referred to as State Relief and Empowerment Waivers. They permit a state to “pursue innovative strategies for providing their residents with access to high quality, affordable health insurance while retaining the basic protections of the Affordable Care Act [ACA].”
The following two key points of section 1332 may be the most misunderstood:
- Section 1332 Waivers apply only to Marketplace coverage, not other federal programs. Guidance from the Centers for Medicare and Medicaid Services (CMS) confirms that these waivers “may not change the terms of a state’s Medicaid coverage.”
- Section 1332 Waivers do not allow a state to waive ACA requirements at will.
Funding can come from the money state residents would have otherwise received in Qualified Health Plan subsidies such as premium tax credits and cost-sharing reductions. This is known as pass-through funding. While all state waivers must be approved by HHS, the Department of Treasury (Internal Revenue Service (IRS) must also approve a state’s Section 1332 Waiver application.
In October 2018, HHS and the Department of Treasury issued an updated guidance, substantially changing the standards (guardrails) for evaluating waiver applications, providing states with increased flexibility.
To date, 13 states have been approved for Section 1332 waivers including Alaska, Colorado, Delaware, Hawaii, Maine, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Rhode Island and Wisconsin. Hawaii has the only 1332 waiver approval for a program other than reinsurance.
The 2018 CMS update encourages states to make broader changes to insurance coverage for their residents. Section 1332 waivers have more potential than for just reinsurance. For example, Idaho proposed giving their Medicaid eligible residents with income between 100 and 138 percent of the Federal Poverty Level, the choice of enrolling in marketplace coverage with tax credits or with Medicaid.
What didn’t change with section 1332 waivers are the ACA consumer protections. Provisions that cannot be waived include: guaranteed issue, age rating, and prohibitions on health status and gender rating.
Each of the four areas of ACA section 1332, where innovation can happen, has the potential to impact recipients, provider of healthcare services, employers and health plans. The four areas are noted below and reproduced with permission of the Robert Wood Johnson Foundation, Princeton, N.J.
Section 1332 Waivers may:
- Modify or eliminate the penalty for the Individual Mandate. Expand or narrow exemptions, though Congress reduced the individual mandate tax penalty to zero starting in 2019.
- Increase or decrease penalties
- Implement late enrollment penalty (similar to Medicare)
- Reduce opportunities for open enrollment
- Make coverage more affordable
- Modify or eliminate the penalty for the Employer Mandate. Exempt mid-sized employers (50-200 employees)
- Raise or lower bar for qualifying coverage
- Change definition of covered employees
- “Play or pay” mandate requiring flat percentage of payroll to be paid in benefits or taxes
- Modify the rules governing Benefits and Subsidies. Smooth out cost sharing cliffs
- Adjust tax credits based on quality metrics
- Add copper plans or ancillary benefits
- Shorten grace periods
- Smooth differences between Medicaid and Exchange (continuous enrollment in Exchange, premiums in Medicaid through 1115 waiver)
- Expand or contract subsidy eligibility (e.g., eliminate family glitch or cap subsidies at 300% FPL)
- Create alternative benefit and/or subsidy system
- Modify or eliminate Qualified Health Plan (QHP) certification and Exchanges as the enrollment/eligibility vehicle. Eliminate specific Exchange or QHP requirements
- Cap small group market at 50 employees
- Replace QHP certification with state-based regulation
- Eliminate market outside Exchange for individuals and/or small groups
- Replace Marketplace with one or more private exchanges
- Allow all individuals (including subsidy-eligible) to purchase ACA-compliant coverage from any licensed insurer or agent
States considering these waivers have several considerations. Those wanting to impact residents at all income levels may apply for both a 1332 and an 1115 Medicaid demonstration waiver. The state cannot rely on savings from the 1115 waiver to offset the 1332 waiver expenses.
Another important consideration is the type of marketplace a state has. The federally-facilitated marketplace may be limited in its ability to program state-specific elements. States may need to establish their own marketplace to accommodate their waiver.
Hopefully this blog has made the case for why it’s important to stay on top of your state’s 1332 waiver status. You can do this by monitoring your state’s legislative activity. It’s not just a wait and see game either! All waivers are subject to state and federal comment periods that are available to everyone and must be open for a minimum of 30 days each. Don’t miss the opportunity to make your voice heard in both public comment processes, as an individual or organization or both.