Colorado Waiver to Reduce Premiums, Improve Health Equity
On June 23, the Department of Health and Human Services (HHS) and Department of the Treasury approved Colorado’s Section 1332 waiver to require and enforce premium reductions and use pass-through savings for state-based Marketplace subsidies. Colorado applied for the waiver last year, as directed by state legislation (HB21-1232). The waiver takes effect January 1, 2023.
The waiver implements the Colorado Option, which makes a suite of changes to health plans sold in the individual and small-group markets. First, it requires any carrier offering a plan to also offer a standardized Colorado Option plan, which must comply with standards set by the state. Colorado Option plans must be sold both on the state’s Marketplace (Connect for Health Colorado) and off Marketplace through the newly formed Colorado Public Benefit Corporation.
Second, standardized plans must be designed to meet the state’s health equity goals. To reduce health disparities, the statute requires that standardized plans be designed to increase perinatal coverage and offer first-dollar, pre-deductible coverage of primary and behavioral health services. The statute also mandates that plans meet network adequacy requirements with provider networks that are “culturally responsive and, to the greatest extent possible, reflect the diversity of [their] enrollees in terms of race, ethnicity, gender identity, and sexual orientation.” The networks of Colorado Option plans can be no more restrictive than the nonstandardized plans offered in the state.
The waiver also authorizes implementation of statutory premium reduction targets in the Colorado Option, with a backstop enforcement mechanism to achieve compliance. In 2023, individual and small-group plan premiums in a given county must be 5% lower than in 2021, adjusted for national medical inflation. That target increases to 10% in 2024 and 15% in 2025 (both compared with the 2021 baseline, with inflation), then beginning in 2026, the premiums are to be no higher than the previous year’s premium plus inflation. The state will use its rate review authority to enforce these limits. Beginning in 2024, if a carrier is unable to meet the premium reduction targets, the insurance commissioner can conduct rate hearings and, if necessary, is authorized to require providers to accept the rates necessary to meet the plans’ targets, subject to certain limits.
These premium targets, combined with the state’s extension of its reinsurance waiver, are expected to generate significant premium reductions—an estimated 22% to 32% over the five-year waiver term as compared with the without-waiver baseline. This lowers federal premium tax credit costs substantially and results in an estimated $1.5 billion in pass-through funding that the state plans to use to support a new affordability program.
The affordability program will offer generous state subsidies, with the final parameters determined based on available pass-through and issuer assessments. People with income between 150% and 300% of the federal poverty level (FPL) who enroll through Connect for Health Colorado and are eligible for federal subsidies will get state help in bringing down their costs. State residents who are ineligible for federal premium subsidies, including undocumented immigrants, and who have incomes up to 300% of the FPL are also eligible for state premium and cost-sharing help. Rather than enrolling through Connect for Health Colorado, which is prohibited, those who are undocumented will enroll in the mirrored plans in the Colorado Public Benefit Corporation.
The state projects the waiver will increase enrollment by 10,000 in 2023 and roughly 32,000 by 2027—a 15% boost. The Biden administration’s approval of Colorado’s Section 1332 waiver may encourage other states to pursue public option proposals—as Washington has done without capturing the savings in a federal waiver and as Nevada intends to do—and gives other states a blueprint for legislating and enforcing premium reductions and for using pass-through savings for state-based Marketplace subsidies.
Federal Comment Period on Washington’s Section 1332 Waiver Opens
HHS and the Treasury are also accepting public comments on Washington’s Section 1332 waiver. The waiver would allow undocumented immigrants to enroll through the state-based Marketplace (Washington Healthplanfinder), which would make undocumented people eligible for state-only subsidies and allow families with mixed immigration statuses to enroll in a health plan together in the Marketplace. Comments are due July 14.
Under the ACA, people who are undocumented are not only ineligible for federal subsidies but also ineligible to enroll in full-cost plans through the Marketplace. However, the provision prohibiting enrollment (Section 1312(f)(3) of the ACA) is among those that can be waived under Section 1332. Washington proposes to do this beginning in 2024.
This provision is part of Washington’s broader Marketplace reform and state subsidy agenda. In 2021, Washington launched new options in Washington Healthplanfinder by introducing its Cascade Care Plans. There are two types of Cascade Care Plans: standardized-benefit Cascade Plans and Cascade Select Plans, which are public-option-style standardized plans with provider reimbursement limits. Starting in 2023, state subsidies called Cascade Care Savings will subsidize Washington residents with incomes at or below 250% of the FPL who purchase gold or silver Cascade Care Plans and meet certain other eligibility requirements. Because these subsidies are only available for enrollment in Cascade Care Plans, undocumented immigrants would be denied state subsidies without approval of this waiver. The state subsidy amount is expected to depend in part on whether a person is eligible for federal subsidies, with higher state subsidies for those ineligible for federal subsidies. The state earmarked $5 million for those ineligible for advance payments of the premium tax credit. The exact amount of enrollees’ subsidies is yet to be determined, pending the expiration or extension of the American Rescue Plan’s premium tax credit enhancements. But even if subsidy enhancements end, people ineligible for federal subsidies, including undocumented immigrants, could see their monthly premiums cut nearly in half.
Other 1332 Waiver Developments
The Biden administration threatened in April to suspend Georgia’s waiver to exit the federally facilitated Marketplace (HealthCare.gov) without creating a state-based Marketplace, unless the state takes certain corrective actions. To comply with the administration’s request, Georgia must submit a plan by July 28 to bring its waiver into compliance with the Section 1332 statutory coverage guardrail, which requires the waiver to cover at least as many people as would be covered without it. Alternatively, Georgia can submit a written challenge to the government’s determination.
Reinsurance waivers have also seen federal action. Maine’s application to claim reinsurance pass-through savings in a combined individual and small-group market is pending approval, with its federal public comment period concluding in April. In addition, several states have had their reinsurance pass-through amounts recalculated to account for the increased federal subsidies available in 2021 through the American Rescue Plan.
Note: More detailed information is available through Manatt on Health, Manatt’s premium information service.