BEYOND THE NUMBERS
The Trump Administration is encouraging states to pursue “1332” waivers that would weaken health coverage and likely raise consumer costs by letting states depart from some Affordable Care Act (ACA) standards and requirements. But so far, no state has submitted a 1332 waiver proposal to implement the Administration’s new concepts.
The Administration issued guidance last fall to weaken the standards that 1332 waivers must meet, saying that the Obama-era guidance was too restrictive. It then released a paper outlining the sorts of new 1332 waivers it would welcome, including types of premium assistance that could vary by state (such as flat tax credits adjusted for age but not income), reduced standards for health plans, and capped personal accounts to take the place of existing subsidies for premiums, deductibles, and other cost-sharing.
But the prior guidance wasn’t stopping states from pursuing new types of 1332 waivers, as the Administration claims. Instead, it was that 1332 waivers rightly require states to meet statutory guardrails for enrollment, affordability, and comprehensiveness; otherwise, they’d leave many people worse off. A fourth guardrail requires that state 1332 proposals not increase the federal deficit. As it turns out, it’s hard to use a 1332 waiver to improve on the ACA’s enrollment, affordability, and comprehensiveness — especially without investing more resources.
Successful and unsuccessful waiver applications to date illustrate this point.
States have used 1332 waivers to set up seven successful reinsurance programs, and more are in the works. These are state-funded programs that reimburse insurers for part of the cost of covering high-cost enrollees in marketplace plans, thereby reducing premiums. That, in turn, lowers federal costs for premium tax credits, and, under those waivers, the federal government passes those savings on to the state. Reinsurance waivers improve premium affordability and maintain or improve enrollment, without weakening coverage or adding to the federal deficit, because states invest some of their own resources to set them up.
Conversely, in 2017, Iowa nearly finalized a 1332 waiver plan similar to one of the Administration’s proposed concepts. But the state concluded that it couldn’t design a proposal that wouldn’t leave many residents worse off without a guarantee of more federal funding than the state would receive under a deficit-neutral waiver.
The Administration recently asked, through a formal comment process, for more ideas about how states might use 1332 waivers. We recommended three ideas that might be attractive to some states and are consistent with the guardrails. But they’d require the Administration to give states flexibility to pursue waivers that conflict with the ideological commitments of its waiver guidance by discouraging non-ACA-compliant plans, encouraging the pooling of risk, and expanding public coverage. States could propose waivers that:
- Ban short-term health plans. The Administration issued a rule in 2018 expanding the availability of so-called short-term health plans, a type of non-ACA-compliant plan that can discriminate based on pre-existing conditions and exclude coverage for key benefits. By blocking or limiting these plans, states can protect consumers from skimpy coverage and reduce premiums in their ACA markets, lowering federal costs for premium tax credits. Nationally, reversing the short-term plans rule would save $38.7 billion over ten years, the Office of the Actuary at the Centers for Medicare & Medicaid Services estimated. A state could use a 1332 waiver to obtain its share of these savings and use these dollars to boost marketplace subsidies.
- Merge the individual and small-group markets. Sticker price premiums in states’ individual markets generally are higher than small-group premiums. If a state merged the two markets, as several have done, premiums for both markets would reflect the health costs of both individuals and small groups, which would lower premiums in the individual market for people who don’t qualify for marketplace subsidies and produce federal savings by reducing premium tax credits. Merging markets could also increase insurer participation and stabilize premium rates. Again, states could receive funding equal to the federal savings and use it to improve subsidies or make other improvements, including by creating a reinsurance program.
- Create a public plan option. Several states are interested in expanding coverage by offering a public plan through their marketplaces, in some cases a plan similar to or structured based on Medicaid. States would use state authorities or bargaining power to secure lower provider rates than commercial plans can obtain, which would enable them to offer lower premiums than the commercial plans that are now available through the marketplace. States considering such proposals could seek 1332 waivers to recapture the savings from the drop in federal costs for premium tax credits to make the public plan, and potentially other marketplace plans, more affordable for consumers.