Following up on a Federal Register notice published October 24, 2018, CMS announced additional information relating to State Relief and Empowerment Waivers, also known as “Section 1332 Waivers” on November 29, 2018 (the Discussion Paper).  Section 1332 Waivers allow states to bypass certain Affordable Care Act (ACA) requirements around essential health benefits, subsidies, premium tax credits, and more.  Under the new guidance, CMS encourages states to seek waivers under the following four categories: 1) state-specific premium assistance, 2) adjusted plan options, 3) account-based subsidies, and 4) risk stabilization strategies.  CMS hopes to “spur innovation” and “reduce burdens for states” through the new guidance.

History of Section 1332 Waivers

Under ACA Section 1332, states may apply to the Department of Treasury and HHS for a waiver of certain aspects of the ACA.  Waivable requirements include, e.g., those around essential health benefits, subsidies to beneficiaries to purchase insurance, requirements for state exchanges, premium tax credits, and the employer mandate.  See ACA § 1332(a)(2) (allowing waiver of ACA Title I, Subtitle D, Part I and II, ACA Section 1402, Section 36B of the Internal Revenue Code, Section 4980H of the Internal Revenue Code, and Section 5000A of the Internal Revenue Code).

In determining whether to approve a Section 1332 Waiver, the Secretaries must determine that the proposed state plan will: 1) “provide coverage that is at least as comprehensive” as that offered through the exchanges, 2) “provide coverage and cost sharing protections against out-of-pocket spending that are at least as affordable” as would otherwise be provided, 3) “provide coverage to at least a comparable number of its residents” as would otherwise be provided, and 4) “not increase the Federal deficit.”  See ACA § 1332(b)(1).  These four limitations are known as the statutory “guardrails.”

Section 1332 Waivers were first available starting in 2017 for 5-year renewable terms and, under the terms of the statute, states continued to receive the same amount of federal funding for approved waivers they would have otherwise received (i.e., funding related to premium tax credits, small business tax credits, and cost-sharing reductions).  See ACA §§ 1332(a)(3), (e).  In 2012, the Secretaries of the Departments of Treasury and HHS finalized implementing regulations at 31 C.F.R. Part 33 and 45 C.F.R. Part 155, which required, e.g., states to provide actuarial analyses and certifications, economic analyses, data assumptions, implementation timeline, and other information to support compliance with ACA § 1332(b)(1) when applying for a waiver.

Recent Guidance

President Trump issued Executive Order 13765 shortly after taking office in January 20, 2017.  That order required, in part, that “to the maximum extent permitted by law, the Secretary of HHS . . . shall exercise all authority and discretion available . . . to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden on any state . . . .”

Citing that order, the Departments of Treasury and HHS provided additional guidance on Section 1332 Waivers on October 24, 2018.  According to the Secretaries, they “are seeking to reduce burdens that may impede a state’s efforts to implement innovative changes and improvements to its health insurance market while remaining consistent with the statute.”  83 Fed. Reg. 53575, 53576-77 (Oct. 24, 2018).  Specifically, the Secretaries will “look favorably upon” new waiver applications from states that promote the following principles:

• “Provide increased access to affordable private market coverage;”
• “Encourage sustainable spending growth;”
• “Foster state innovation;”
• “Support and empower those in need;” and
• “Promote consumer-driven healthcare.”

83 Fed. Reg. at 53577.  The Department of Treasury and HHS’ “more flexible” interpretation of Section 1332 will focus on access to coverage, rather than coverage actually purchased by residents, within the statutory guardrails.  Id.  It will also allow states “to provide access to less comprehensive or less affordable coverage as an additional option.”  83 Fed. Reg. at 53578.

In the Discussion Paper published on November 29, 2018, CMS announced four “waiver concepts” for states to consider in applying for a Section 1332 exemption:

• State-specific premium assistance, which would allow states to “design a subsidy structure that meets the unique needs of its population.”  A state might provide premium credits based on age or conditions, rather than income, for example.
• Adjusted plan options, where “states would be able to provide financial assistance for different types of health insurance plans,” including expanding the ability of consumers to use state subsidies to purchase catastrophic plans, individual market plans that are not “qualified health plans,” or other plans that do not meet ACA requirements.
• Account-based subsidies, which would allow a state to “direct public subsidies into a defined-contribution, consumer-directed account” (a Health Expense Account), which individuals could use to pay premiums or other healthcare expenses.  The subsidies may be funded through premium or small business tax credits, and could include individual and employer contributions.
• Risk stabilization strategies, which “gives states more flexibility to implement reinsurance programs or high-risk pools.”  States may use claims or conditions cost-based models.

However, states are not required to use these waiver concepts, and may use them in combination with other state proposals or policy changes.

President Trump’s January 20, 2017 Executive Order is available here.  The Department of Treasury and HHS’ Federal Register guidance published October 24, 2018, is available here.  CMS’s fact sheet is available here.  CMS’s Discussion Paper is available here.  CMS’s Section 1332 website, including a listing of the states that have applied for Section 1332 Waivers, is available here.