Editor’s Note: This is the latest in a series of posts by Timothy Jost on the implementation of the Affordable Care Act. Earlier posts have analyzed some important guidances, as well as provisions governing student health plans, premium review, medical loss ratios, insurance exchanges, coverage for pre-existing conditions, appeals of coverage denials, coverage for preventive services, a patient bill of rights, grandfathered plans, tax-exempt hospitals, the small employer tax credit, the Web portal, reinsurance for early retirees, and young adult coverage.
One of the most striking characteristics of the Affordable Care Act is the flexibility that it offers the states to partner with the federal government in implementing reform. Although the legislation establishes a basic federal framework for reforming our health insurance system, it leaves the states to decide how much they will be involved in the implementation of the law. The states, for example, have the option of either implementing the health insurance exchanges themselves or allowing the federal government to do so. States may establish their own risk adjustment programs, preexisting condition high risk pools, and excessive premium increase review programs or leave these tasks to the federal government.
The states also have the option of either enforcing the ACA’s basic insurance regulatory reforms (the ban on rescissions, the requirement of coverage for adult children and of preventive services without cost-sharing, and others), or letting the federal government do it. If a state chooses to implement the law itself, moreover, it generally has a great deal of flexibility in the approach it takes to implementation, as we are witnessing currently in the widely varying approaches the states are taking to establishing their exchanges.
There are also, however, specific provisions of the ACA that give the states even greater implementation flexibility. Section 1331 permits states to receive block grants to establish a “basic health program” offering standard plans to persons who are not eligible for Medicaid but whose family income is less than 200 percent of poverty, while section 1333 permits states to enter into interstate compacts for the sale of health insurance across state lines (a long-standing Republican policy proposal).
The greatest flexibility, however, is provided by section 1332. This provision authorizes the Departments of Health and Human Services and Treasury to waive key provisions of the ACA and to provide block grants in the amount that the federal government would otherwise have spent in a state on ACA tax credits to states that develop their own innovative proposals for reforming health care. Regulations to implement this provision were proposed on March 10, 2011.
What Provisions Of The Affordable Care Act Can Be Waived?
The provisions that can be waived under section 1332 include key components of the ACA reforms. One waivable provision, for example, is the minimum coverage requirement or individual mandate, possibly the least popular provision of the ACA. States that have a better idea for expanding coverage are free to apply for a waiver that would lift this mandate. States can also waive the penalties imposed on large employers who do not offer health insurance or offer inadequate coverage and whose employees receive federal tax credits. States that receive a waiver do not need to establish an exchange.
States can also obtain a waiver to redesign the essential benefit package or to offer more (or fewer) tiers of cost-sharing than those permitted by the ACA. And, as already noted, states can receive a block grant in the amount of the individual and small employer tax credits that would otherwise have been spent in their state to fund their own innovative program for expanding coverage. Finally, although 1332 only authorizes waivers from specific requirements of Title I of the ACA (the insurance reform provisions), a state may pair a 1332 waiver request with a Medicaid or Children’s Health Insurance Program waiver request to design an even more comprehensive approach to reform.
What ACA Provisions Cannot Be Waived?
Some provisions of the reform law are not subject to waiver. These include most of the insurance reforms imposed by the law: elimination of health status underwriting and preexisting condition exclusions; required coverage for adult children; internal and external appeals; access to preventive care without cost-sharing; a bar on lifetime and annual dollar coverage limits; and others. Grandfathered plans remain protected and the ACA’s risk adjustment programs remain in place. But the provisions that can be waived go to the heart of the structure of health care reform and permit a wide scope for innovation.
What Do States Have To Demonstrate To Obtain A Waiver?
Substantively, the proposed regulations by and large repeat the provisions of section 1332. For a state to receive an innovation waiver it must demonstrate that the state’s proposal will provide coverage that:
- is at least as comprehensive as ACA coverage;
- is at least as affordable as coverage under the ACA and offers at least as great protection against excessive out-of-pocket spending;
- covers at least as many residents as would be covered under the ACA; and
- will not increase the federal deficit.
The primary contribution of the proposed rule is to describe the procedures that the states and HHS and Treasury must follow in applying for and approving waivers. A state will begin by enacting legislation establishing its reform plan. It will then apply for a waiver, submitting a comprehensive description of its program and the provisions of the ACA which it is asking to be waived, along with an actuarial certification and economic analysis demonstrating that its proposed waiver will meet the substantive requirements of section 1332. The proposal must include a detailed 10-year budget plan, data supporting the request, and an explanation of the key assumptions and methodologies on which the request is based. The preface to the rule suggests that it would probably be necessary for a waiver request to be submitted a year before proposed implementation.
Once a proposal is submitted, HHS and Treasury will have 45 days to make a preliminary determination that the application is complete. Once they determine that they have enough information, they will have 180 days to complete the approval process. Review of a waiver request will be coordinated with applications for waivers under other federal laws, such as Medicaid or CHIP waivers.
A waiver can be approved for up to 5 years. States must submit annual reports and HHS and Treasury must monitor implementation. HHS and Treasury can suspend or terminate a waiver if the state fails materially to comply with the terms of the waiver.
Public Involvement In The Waiver Process
A remarkable feature of the proposed rule is the extent to which the public will be involved in the waiver process. The existing Medicaid waiver process has been criticized in the past by the Government Accountability Office and others because of the lack of transparency in the process. Indeed, section 10201(i) of the ACA includes major changes in the 1115 Medicaid and CHIP waiver approval process to provide for greater public participation and scrutiny. Proposed regulations implementing the 1115 waiver changes were published last fall.
Under the ACA waiver proposed rules, states would have to publish their waiver proposals for public notice and comment before submission to HHS and Treasury. They would also have to hold public hearings (plural) on their proposals. Once the federal government determined that a proposal was complete, it would also have to provide a federal public notice and comment period. Six months after the implementation date for a waiver proposal and annually thereafter, a state would have to hold a public forum to provide an opportunity for public comment. It would have to provide a report on those fora and on all public comments received to HHS.
The Proposal To Move The Waiver Date Forward To 2014
Under the ACA, waiver programs can only go into effect beginning in 2017. Apparently Congress believed that it would take three years of experience after the tax credits were implemented to determine the appropriate amount to allocate to the states under waiver block grants. But if a state truly does have a better idea for reforming health care, it makes little sense for the state to first implement that ACA provisions and then radically change its approach three years later. For this reason, Senators Ron Wyden (D-OR), Scott Brown (R-MA), and others have proposed legislation that would accelerate the date on which waivers could be effective until 2014. The Obama administration has recently endorsed this proposal, although it does not seem to have been warmly received by Republicans in Congress, who would rather repeal the entire bill. Whether or not implementation is accelerated to 2014, the ACA required rules to be issued for this provision within 180 days and the states will need considerable lead time for developing and adopting waiver legislation, so the rules are timely.
What will the waiver programs look like? The HHS news release suggested that states might want to coordinate individual and small business tax credits or change the benefit levels offered by the ACA. Vermont has indicated interest in using the waiver process to develop a single-payer system. While the waiver program adds to the considerable flexibility found in the ACA, however, that flexibility is not unlimited and any proposal will need to be coordinated with many provisions of the ACA that cannot be waived. It remains to be seen what innovative proposals the states will propose, and whether they will in fact be permissible under the ACA.