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Final rule on requirements for Section 1332 state waivers

Waivers for State Innovation

Department of Health and Human Services
Department of the Treasury

To be published in the Federal Register 12/16/2015

Summary

This guidance relates to Section 1332 of the Patient Protection and Affordable Care Act (ACA) and its implementing regulations. Section 1332 provides the Secretary of Health and Human Services and the Secretary of the Treasury with the discretion to approve a state’s proposal to waive specific provisions of the ACA (a State Innovation Waiver), provided the proposal meets certain requirements. In particular, the Secretaries can only exercise their discretion to approve a waiver if they find that the waiver would provide coverage to a comparable number of residents of the state as would be provided coverage absent the waiver, would provide coverage that is at least as comprehensive and affordable as would be provided absent the waiver, and would not increase the Federal deficit. If the waiver is approved, the state may receive funding equal to the amount of forgone Federal financial assistance that would have been provided to its residents pursuant to specified ACA programs, known as pass-through funding. State Innovation Waivers are available for effective dates beginning on or after January 1, 2017. They may be approved for periods up to 5 years and can be renewed. The Departments promulgated implementing regulations in 2012. This document provides additional information about the requirements that must be met, the Secretaries’ application review procedures, the amount of pass-through funding, certain analytical requirements, and operational considerations.

Excerpts:

I. Statutory Requirements

A. Coverage

To meet the coverage requirement, a comparable number of state residents must be forecast to have coverage under the waiver as would have coverage absent the waiver.

The impact on all state residents is considered, regardless of the type of coverage they would have absent the waiver.

Assessment of whether the proposal covers a comparable number of individuals also takes into account the effects across different groups of state residents, and, in particular, vulnerable residents, including low-income individuals, elderly individuals, and those with serious health issues or who have a greater risk of developing serious health issues. Reducing coverage for these types of vulnerable groups would cause a waiver application to fail this requirement, even if the waiver would provide coverage to a comparable number of residents overall.

B. Affordability

To meet the affordability requirement, health care coverage under the waiver must be forecast to be as affordable overall for state residents as coverage absent the waiver.

Affordability refers to state residents’ ability to pay for health care and may generally be measured by comparing residents’ net out-of-pocket spending for health coverage and services to their incomes. Out-of-pocket expenses include both premium contributions (or equivalent costs for enrolling in coverage), and any cost sharing, such as deductibles, co-pays, and co-insurance, associated with the coverage.

Waivers are evaluated not only based on how they affect affordability on average, but also on how they affect the number of individuals with large health care spending burdens relative to their incomes. Increasing the number of state residents with large health care spending burdens would cause a waiver to fail the affordability requirement, even if the waiver would increase affordability for many other state residents. Assessment of whether the proposal meets the affordability requirement also takes into account the effects across different groups of state residents, and, in particular, vulnerable residents, including low-income individuals, elderly individuals, and those with serious health issues or who have a greater risk of developing serious health issues. Reducing affordability for these types of vulnerable groups would cause a waiver to fail this requirement, even if the waiver maintained affordability in the aggregate.

In addition, a waiver would fail the affordability requirement if it would reduce the number of individuals with coverage that provides a minimal level of protection against excessive cost sharing.

C. Comprehensiveness

To meet the comprehensiveness requirement, health care coverage under the waiver must
be forecast to be at least as comprehensive overall for residents of the state as coverage absent the waiver.

Comprehensiveness refers to the scope of benefits provided by the coverage as measured by the extent to which coverage meets the requirements for essential health benefits (EHBs) as defined in section 1302(b) of the ACA, or, as appropriate, Medicaid and/or CHIP standards. The impact on all state residents is considered, regardless of the type of coverage they would have absent the waiver.

A waiver cannot satisfy the comprehensiveness requirement if the waiver decreases: 1) the number of residents with coverage that is at least as comprehensive as the benchmark in all ten EHB categories; 2) for any of the ten EHB categories, the number of residents with coverage that is at least as comprehensive as the benchmark in that category; or 3) the number of residents whose coverage includes the full set of services that would be covered under the state’s Medicaid and/or CHIP programs, holding the state’s Medicaid and CHIP policies constant. That is, the waiver must not decrease the number of individuals with coverage that satisfies EHB requirements, the number of individuals with coverage of any particular category of EHB, or the number of individuals with coverage that includes the services covered under the state’s Medicaid and/or CHIP programs.

Assessment of whether the proposal meets the comprehensiveness requirement also takes into account the effects across different groups of state residents, and, in particular, vulnerable residents, including low-income individuals, elderly individuals, and those with serious health issues or who have a greater risk of developing serious health issues. A waiver would fail the comprehensiveness requirement if it would reduce the comprehensiveness of coverage provided to these types of vulnerable groups, even if the waiver maintained comprehensiveness in the aggregate.

D. Deficit Neutrality

Under the deficit neutrality requirement, the projected Federal spending net of Federal revenues under the State Innovation Waiver must be equal to or lower than projected Federal spending net of Federal revenues in the absence of the waiver.

The estimated effect on Federal revenue includes all changes in income, payroll, or excise tax revenue, as well as any other forms of revenue (including user fees), that would result from the proposed waiver. Estimated effects would include, for example, changes in: the premium tax credit and health coverage tax credit, individual shared responsibility payments, employer shared responsibility payments, the excise tax on high-cost employer-sponsored plans, the credit for small businesses offering health insurance, and changes in income and payroll taxes resulting from changes in tax exclusions for employer-sponsored insurance and in deductions for medical expenses.

The effect on Federal spending includes all changes in Exchange financial assistance and other direct spending, such as changes in Medicaid spending (while holding the state’s Medicaid policies constant) that result from the changes made through the State Innovation Waiver. Projected Federal spending under the waiver proposal also includes all administrative costs to the Federal government, including any changes in Internal Revenue Service administrative costs, Federal Exchange administrative costs, or other administrative costs associated with the waiver.

V. Operational Considerations

A. Federally-Facilitated Exchanges

The Centers for Medicare & Medicaid Services (CMS) operates the Federally-facilitated Exchange (FFE) platform. Certain changes that affect FFE processes may make a waiver proposal not feasible to implement at this time. Until further guidance is issued, the Federal platform cannot accommodate different rules for different states.

B. Internal Revenue Service

Certain changes that affect Internal Revenue Service (IRS) administrative processes may make a waiver proposal not feasible to implement. At this time, the IRS is not generally able to administer different sets of rules in different states.

https://www.federalregister.gov/articles/2015/12/16/2015-31563/guidance-waivers-for-state-innovation

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Comment:

By Don McCanne, M.D.

Section 1332 of the Affordable Care Act allows states to apply for waivers to exempt them from some of the requirements of the legislation so that they can introduce their own innovations that they believe would better serve their respective states. This final federal rule on the waivers provides guidance on how much flexibility will be allowed.

The good news is that those states that would use waivers to cut back on benefits provided under the program will not have much flexibility to do so under these rules. Particularly important is the fact that, not only must overall average coverage, comprehensiveness and affordability be maintained, the states are prohibited from adopting innovations that would leave more vulnerable individuals worse off. As we have seen from state responses to the Medicaid expansion, some governors are quite willing to reduce or eliminate benefits for those most in need.

The bad news is that those who have held up hopes that Section 1332 would open the doors for a state-based single payer system will find that these rules significantly limit flexibility. Also required by these rules is extensive documentation that would confirm that the state is fully compliant with the specific stipulations of the waivers. That could be very difficult with a state reform model that attempts to place everyone in one program with a single risk pool funded by multiple sources, including ACA premium credits and cost-sharing subsidies.

Regardless, these rules should not deter state activists from moving full steam ahead in supporting every measure possible that would improve health care access for the residents of their states. Until we have a political climate that would support the requisite federal legislation, we need to accomplish whatever we can on the state level.

That said, since isolated state efforts will inevitably fall short of achieving health care nirvana, at the same time we must intensify our efforts to change the political climate so that we can finally achieve our goal of enacting a single payer national health program. That still has to be our number one priority.

Correction

The Quote of the Day for December 14, 2015 was on HHS and Treasury guidance for ACA Section 1332 state waivers. It was titled, “Final rule on requirements for Section 1332 state waivers,” but it was not a rule.

Timothy Jost provides an excellent discussion of the Section 1332 guidance, which is well worth reading for single payer activists. In it he explains the difference between guidance and rule, as follows:

HHS And Treasury Release Substantive Guidance On ACA State Innovation Waivers

By Timothy Jost
Health Affairs Blog, December 11, 2015

Flexibility Limited To Waivers That Meet The Goals Of The ACA — For Now

Anyone who thought that the 1332 waiver program would allow states to design health care programs that deviated radically from the program found in the ACA will be disappointed by the guidance. But that should come as no surprise: section 1332 on its face authorizes programs that meet all of the affordability and comprehensiveness aspiration of the ACA, just through a different approach. States that have innovative ideas that will promote the goals of the ACA, however, should be able to get approval under this guidance.

It should be noted in conclusion, though, that this is only guidance, not a rule. Guidance can be changed easily; rules can only be changed through rulemaking, which takes time and requires a reasoned explanation. Section 1332 innovation waivers cannot take effect until 2017, and in 2017 we will have a different administration.

Health Affairs Blog, Timothy Jost:

http://healthaffairs.org/blog/2015/12/11/hhs-and-treasury-release-substantive-guidance-on-aca-state-innovation-waivers/

Federal Register, “Waivers for  state Innovation”:

https://www.federalregister.gov/articles/2015/12/16/2015-31563/waivers-for-state-innovation