On February 22, 2012, the Department of Health and Human Services (HHS) issued two final regulations implementing sections of the Affordable Care Act (ACA). The two regulations effectuate 1) an ACA provision that will offer the states flexibility in implementing key ACA requirements beginning in 2017, and 2) an ACA amendment to a section of the Medicaid statute that has long afforded the states flexibility in implementing their Medicaid programs.

State innovation waivers.  One of the two final regulations implements section 1332 of the ACA, which permits states to apply to HHS and to the Department of the Treasury for “innovation waivers” to implement state-specific health reform approaches that vary from certain ACA requirements.  The specific provisions of the ACA that can be waived include the provisions relating to qualified health plans (including the essential health benefits package), the exchanges, premium tax credits, cost-sharing reduction payments, the minimum coverage requirement (individual mandate), and the employer responsibility requirements.  If a state is granted a waiver, the state can fund its reforms through the aggregate amount of federal funding that otherwise would have been paid out within the state for premium tax credits, cost-reduction payments, and small business tax credits. 
To qualify for an innovation waiver, the state must establish that its reform plan would provide coverage that:

  • Is at least as comprehensive as ACA coverage,
  • Is at least as affordable as ACA coverage,
  • Covers at least as many residents as the ACA would have covered, and
  • Will not increase the federal deficit.

Medicaid waivers.  The Medicaid regulation implements amendments to section 1115 of the Social Security Act, which allows HHS to waive certain requirements of Social Security Act programs, including Medicaid, to permit experimental, pilot, and demonstration projects.  Section 1115 is a long-standing provision of the Social Security Act, and indeed antedates the Medicaid program.  Its purpose is to allow states to demonstrate innovative approaches to taking care of the needs that the Social Security Act addresses.

As HHS implementation of section 1115 has evolved, however, the waiver process has been used by HHS (particularly in the Clinton and Bush administrations) to permit the states to implement Medicaid programs on a more or less permanent basis that deviate quite dramatically from statutory requirements, with little public involvement or accountability and with little if any research evaluation.  Both in 2002 and 2007, the Government Accountability Office issued reports critical of the lack of public involvement in the 1115 waiver process.

In response, Congress adopted section 10201(i) of the ACA, which requires public notice and comment, including public hearings, at the state level, and further public notice and comment at the federal level, before waiver programs can be approved and renewed.  Regular periodic reporting on and evaluation of 1115 waiver  programs is also required.

Timing.  The simultaneous issuance of these rules is a bit curious.  The ACA required Section 1115 regulations to be issued within 180 days of the enactment of the statute, a year and a half ago.  Section 1332 does not go into effect until 2017, so issuance of final regulations now would hardly seem an urgent priority.

Nevertheless, the administration has stated its support for legislation that would move up the effective date of the 1332 waivers to 2014, and section 1332 expressly provides that 1332 waivers should be coordinated with other waiver programs, including section 1115 waivers, so there is some reason to get the 1332 rules out.  Some states, notably Vermont with its single-payer reform plan, have announced their intention to seek waivers as soon as possible, and these regulations give them a roadmap on how to proceed.  It is probably also not a coincidence that these regulations were issued two days before the National Governors’ Association winter meeting in Washington.

Although the two regulations vary in their details (and the Medicaid 1115 regulation has many more details), they both take a similar approach.  Both require detailed submissions specifying the legal requirements from which a waiver is sought and documenting compliance with waiver requirements.  Both require public notice and opportunity for comment, including at least two public hearings, with an opportunity for web or telephonic participation for those who cannot physically attend a hearing.  Public participation requirements must also be met for 1115 waiver extensions, as well as initial, applications.

Once HHS receives an 1115 or innovation waiver request, it must also seek and publish public comments.  If an 1115 or state innovation waiver is approved, continued compliance with waiver requirements must be monitored.  In particular, the state must hold a public forum within 6 months of approval and annually thereafter to solicit comments on implementation.

Section 1115 demonstration projects must also have an evaluation plan and must actually be evaluated—that is to say, they must actually be designed to conduct research, not just to escape federal statutory requirements.  States must file regular reports on evaluation projects.  HHS (and Treasury for 1332 waivers) can terminate waiver programs that fail to meet statutory requirements.