On July 15, 2019, the Centers for Medicare and Medicaid Services (CMS) released new resources to support states in pursuing waivers under Section 1332 of the Affordable Care Act (ACA). These resources—which include new waiver concept papers, application templates, and a checklist—are designed to encourage states to pursue broader waivers.
In addition, CMS informed Rhode Island that its application to develop a state-based reinsurance program under Section 1332 was complete. Rhode Island’s reinsurance program will be funded, in part, through a new state-level individual mandate. Comments on the waiver application can be made through August 14.
Overview Of Section 1332
Section 1332 allows states, with federal approval, to waive certain requirements of the ACA. States must meet specific procedural and substantive standards and retain the basic protections of the ACA, but they can waive, for instance, the individual and employer mandates and qualified health plan requirements. The goal of these “state innovation waivers” is to enable states to pursue alternative coverage approaches in the individual and small group markets. To help fund these efforts, Section 1332 allows the federal government to “pass through” the money that it would have spent on premium tax credits, cost-sharing reductions, and small employer tax credits to the state.
Section 1332 waivers became available beginning in 2017. To date, eight states—Alaska, Hawaii, Maine, Maryland, Minnesota, New Jersey, Oregon, and Wisconsin—have had their waivers approved. (Other states—such as California, Iowa, and Oklahoma—previously submitted waivers but they were not approved or were withdrawn.) Except for Hawaii, all approved waivers have been for state-based reinsurance programs. Reinsurance programs have proven effective in reducing individual market premiums.
Despite the popularity of reinsurance programs, CMS continues to try to woo states to use Section 1332 waivers to restructure their health insurance markets. As discussed more here, the Trump administration has emphasized Section 1332 options. Late last year, CMS and the Treasury Department released new guidance on Section 1332 and developed four new “waiver concepts” for consideration by states. These waiver concepts are: 1) account-based subsidies; 2) state-specific premium assistance; 3) adjusted plan options; and 4) risk stabilization strategies.
The House of Representatives recently passed legislation that would roll back the 2018 guidance. And, on July 15, the U.S. Government Accountability Office (GAO) concluded that the guidance is a “rule” for purposes of the Congressional Review Act. This means the guidance should be submitted to Congress for review. Under the Congressional Review Act, Congress has 60 days from the submission date to overturn the rule by a simple majority in both chambers. This would invalidate the guidance and prevent CMS from issuing similar guidance in the future. The GAO issued this opinion in response to a request from Rep. Frank Pallone, Jr. (D-NJ), chairman of the House Energy and Commerce Committee, and Sen. Ron Wyden (D-OR), ranking member of the Senate Finance Committee.
CMS has also held forums across the country to get input from state leaders and other stakeholders and issued a new request for information to solicit ideas on even more waiver concepts. In response to concerns about transparency, CMS released additional details and resources on the ways it calculates federal pass-through funding, an overview of the steps that states might take when considering a Section 1332 waiver, additional data from the Office of Tax Analysis, and a summary of user fee data for states that use HealthCare.gov.
New 1332 Resources For States
To encourage states to pursue broader waivers, CMS released an overview of waiver concept templates, a checklist for waiver applications, and four new waiver concept papers and templates. These materials can be found here.
In its overview, CMS notes its belief that states may benefit from additional resources on how to apply for a Section 1332 waiver. To meet this need, the agency is issuing separate papers and model templates for each of its four existing “waiver concepts.” The purpose of the waiver concept papers is to, as CMS puts it, “make each waiver concept more easily understandable to state policy makers and the general public.” Here are the waiver concept papers for account-based subsidies; state-specific premium assistance; adjusted plan options; and risk stabilization strategies.
Generally speaking, these papers are similar to a waiver concepts discussion paper from 2018 but with some additional explanations and examples for states to consider. CMS notes that its “risk stabilization strategies” concept includes reinsurance, but the new paper focuses on high-risk pools because states are already familiar with reinsurance waiver applications.
CMS goes further than before however, by releasing waiver templates for each of the four waiver concepts (account-based subsidies; state-specific premium assistance; adjusted plan options; and risk stabilization strategies). These waiver templates include some draft language that states can use in developing their waiver applications. The templates are designed to provide states with a roadmap for their application and to identify key issues that states should consider. Use of the templates remains optional and does not guarantee that a state’s waiver application will be approved.
CMS also released an updated 1332 waiver application checklist. The agency had previously issued a reinsurance checklist. That resource was modified to be more of a general checklist for any 1332 waiver application under the 2018 guidance.
Rhode Island’s Application
On July 15, CMS informed Rhode Island that its application for a state-based reinsurance program under Section 1332 of the ACA was complete. Comments on the application can be made through August 14. As with recent waiver applications in Colorado, North Dakota, and Montana, the review process was very quick: the application was submitted on July 8 and deemed complete on July 15 (just one week later). Following the comment process, CMS and the Department of Treasury will approve or deny the application within 180 days.
Rhode Island’s five-year reinsurance program would be overseen by HealthSource Rhode Island (HSRI), the state’s marketplace. The program would begin in the 2020 plan year and is projected to reduce premiums by about 6 percent each year (relative to what premiums would have been in the absence of the waiver). Enrollment in the individual market in 2020 would increase by about 1 percent.
The program was created by legislation passed in 2018 and 2019. The 2018 legislation authorized HSRI to pursue a Section 1332 waiver for a reinsurance program. This was followed by legislation in 2019 that authorized the state to adopt an individual health insurance mandate beginning in 2020. As in New Jersey’s reinsurance program, any penalties from the individual mandate would be used to fund the state’s portion of the reinsurance program. These penalties would be placed in Rhode Island’s new Health Insurance Market Integrity Fund and could be used to fund the reinsurance program, for the administration of the individual mandate, or for preventive health care programs for vulnerable populations.
If approved, Rhode Island would have a $14.7 million reinsurance program for 2020 funded through the individual mandate penalty and federal pass-through funding. Rhode Island estimates a federal pass-through rate of 43 percent. Of the $14.7 million, the federal government would contribute less than half of the funds (about $6.4 million), and the state would contribute about $8.3 million.
Like nearly all states with reinsurance programs, Rhode Island chose to use an overall attachment point model with parameters set annually by HSRI. For 2020, the program would be expected to reimburse insurers for 50 percent of claims between $40,000 and $97,000. To ensure program predictability, HSRI would reduce or increase the coinsurance rate as needed to make the program budget-neutral (such that reinsurance payments equal the total available funding for the benefit year).
