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What States Can — and Can’t — Do Under Health Reform’s “State Innovation” Waivers

February 11, 2015 at 11:50 AM

“Waivers for state innovation,” also known as “1332 waivers” for the section of the Affordable Care Act creating them, are attracting attention as a way for states, beginning in 2017, to pursue their own approaches to expand coverage under health reform.  But there’s considerable uncertainty about the scope of these waivers.  Our new paper explains how states can use 1332 waivers, what they must do to get federal approval, and how these waivers interact with other waivers related to federal health programs.

Section 1332 waivers allow states to change a number of health reform provisions, including:

  • the “essential health benefits” that all plans offered in the marketplace must offer;
  • the premium tax credits and cost-sharing subsidies that help low- and moderate-income people afford marketplace coverage;
  • the requirement that individuals have health coverage or pay a penalty; and
  • the requirement that employers with 50 or more full-time-equivalent workers offer coverage.

Many important parts of health reform aren’t subject to section 1332, so states can’t change them.  These include the prohibition against denying coverage or charging higher premiums to people with pre-existing health conditions, the requirement to cover certain preventive medical care at no charge to enrollees, and the requirement to cover adult dependents up to age 26.

To ensure that health reform’s overarching goals (such as extending access to affordable coverage) continue, states must satisfy several conditions to obtain 1332 waiver approval.  In general, the waiver can’t leave residents worse off than if they had continued to receive marketplace coverage.  More specifically:

  • A state must show that coverage under its waiver would be “at least as comprehensive” as marketplace coverage.
  • The state must show that, under the waiver, coverage will be at least as affordable as under the marketplace.
  • The state must ensure that the number of people receiving coverage under a 1332 waiver is at least “comparable” to the number who would have had coverage without the waiver.
  • The waiver must not increase the federal deficit.

Contrary to some claims, section 1332 waivers aren’t “super waivers” that allow states to change Medicaid, the Children’s Health Insurance Program, or Medicare.  But they could help simplify a state’s efforts to make cross-cutting changes to its public health insurance landscape by allowing the state to combine waiver requests for these programs into a single application.

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