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Health Reform’s Innovation Waivers Can’t Raise Deficit

Ever since health reform (the Affordable Care Act or ACA) became law in 2010, some state officials and policy experts have continued suggesting that its “state innovation waivers” will let states make sweeping changes to health reform and Medicaid beginning in 2017.  But let’s be clear: the law doesn’t let states use these waivers for far-reaching health reform changes that could endanger core goals such as extending access to affordable, comprehensive health coverage.  Nor can states use them to change Medicaid.

Moreover, some believe that states could combine innovation waivers with Medicaid waivers and, by shifting federal dollars among multiple waivers, meet the requirement that innovation waivers not add to federal budget deficits.  That’s also incorrect.  The ACA’s section 1332, authorizing the innovation waivers, makes clear that they apply only to specific aspects of health reform such as the health insurance marketplaces, the marketplace subsidies, and the requirement that individuals have health coverage or pay a penalty.  They don’t give states any new authority to change their Medicaid programs.

Innovation waivers must satisfy several tests before the federal government can approve them.  In addition to not raising the deficit, they must provide coverage that’s as comprehensive, affordable, and covers at least as many people as under current law.  

Some state officials have suggested that states could meet the deficit test by submitting an innovation waiver together with a waiver under Medicaid or another health care program and offset the higher costs of one waiver with savings from the other.  Some also have floated the idea that states that haven’t expanded Medicaid under the ACA could use an innovation waiver to get federal Medicaid funds intended for that expansion but use them differently, such as to help people buy private coverage.

Federal guidance from December, though, has appropriately clarified that these approaches don’t meet the ACA’s deficit test.

Advocates of allowing savings from other waivers to offset the costs of an innovation waiver have suggested a future Administration could change course.  But it’s not that simple because the guidance merely affirms the statutory language in section 1332.

The ACA lets states submit a single application requesting an innovation waiver as well as waivers under other federal health care programs, including Medicaid.  But this “coordinated” waiver process merely simplifies the procedure for states seeking reforms that involve multiple programs.  Nothing in section 1332 allows the fiscal impact of Medicaid or other waivers to affect whether the innovation waiver meets the deficit test, which references only innovation waivers and the health reform provisions to which they may apply. 

December’s guidance takes a sound approach in outlining a process for evaluating the ACA’s innovation waivers that’s consistent with the law’s statutory language.  The waivers are subject to clear limitations and must satisfy certain standards for coverage, affordability, comprehensiveness, and budget impact.  But they can still be useful to states that want to build on the ACA’s success and further improve residents’ health coverage.