While the future of the American Health Care Act is uncertain, states continue to be interested in reforming their health care systems. We believe that states will ramp up efforts to exercise authority they have under existing law to address their state’s health care needs. While Medicaid’s 1115 waivers deservedly get the most attention, the public profile of 1332 waivers is increasing as states look to improve their health care markets.
We have written previously about the promise and challenges of Section 1332 waivers, and believe they provide states with tools to make the Affordable Care Act work better in their states. But despite initial interest, few waivers have been submitted and only one approved.
What has changed? The first 1332 waiver to be approved was from Hawaii and was targeted and unique to that state. But more recent action spans the geographic and political spectrum, and there is new encouragement from the Trump administration. The common theme is states taking action to promote stability in their individual insurance market.
The Alaska Model Gains Traction
Alaska’s state-funded reinsurance plan for its individual market is getting significant attention as states consider ways to stabilize their individual markets. In 2016, Alaska created a state-operated fund to cover all health care costs of people in the individual insurance market that had certain, traditionally high-cost diagnoses. By subsidizing the costs of individuals with diseases such as HIV/AIDS, cancer, and multiple sclerosis, among other conditions, the state was able to reduce the increasing cost burden on its market risk pool. As a result, insurance rates for 2017 in Alaska that had been predicted to rise more than 40 percent, were only 7.3 percent higher than 2016.
The Obama administration issued guidance encouraging states that invested in the stability of their state health insurance market to seek federal support through Section 1332 waivers, and Alaska has submitted a 1332 waiver to recoup some of the savings that would accrue to the federal government and use that funding to further stabilize rising premiums and bolster its individual market. The Obama administration responded favorably to the application, and it is now pending before the Trump administration.
Section 132 of the American Health Care Act created a Patient and State Stability Fund, which would provide $123 billion to states to support efforts to stabilize the individual market. The legislation highlights a number of potential uses of the fund, including the creation of a reinsurance plan to protect the risk pool from high-cost cases. Alaska’s 1332 application was undoubtedly a model for this use of the Stability Fund.
Department of Health and Human Services Encourages 1332 Waivers
The new administration has taken several opportunities to encourage states to consider the 1332 waiver. Most recently, on May 11, the Department of Health and Human Services (HHS) and the Department of the Treasury issued new guidance to states, in the form of a checklist that will help states pursuing Section 1332 waivers as they develop and complete the required elements of the application, in particular 1332 waivers implementing a high-risk pool/state-operated reinsurance program.
In addition, on March 13, 2017, HHS secretary Tom Price wrote to the nation’s governors regarding the administration’s efforts to “empower states with new opportunities that will strengthen their health insurance markets.” The letter encouraged states to consider Section 1332 waivers, noting “State Innovation Waivers that implement high-risk pool/state-operated reinsurance programs may be an opportunity for states to lower premiums for consumers, improve market stability, and increase consumer choice.” The letter highlights the significant mitigation of anticipated rate increases resulting from Alaska’s state-operated reinsurance program and notes, “a state may be able to receive pass-through funding to help offset a portion of the costs for the high-risk pool/state-operated reinsurance program.”
The letter reiterates the process for application and review of Section 1332 waivers and promises assistance in formulating models that meet the guidelines of the state. The letter also speaks to further guidance, including a checklist for states. Whether the new administration will adhere to the constraints places on waivers by the Obama administration is yet to be seen.
Other State Action
Minnesota has taken a number of actions to address challenges in its individual market. The first was last year’s action by commerce commissioner Mike Rothman to allow a limit on the number of enrollees that any carrier on the Marketplace was required to accept. This enrollment cap led to high levels of activity in the early weeks of open enrollment, as Minnesotans rushed to reserve their spot with a preferred carrier. In early 2017, Minnesota enacted legislation that provided a 25 percent premium rebate for 2017 for people purchasing coverage on the individual market without advance premium tax credits.
In April, Minnesota enacted legislation to create a reinsurance plan for the individual market in 2018. The legislation directed the state to apply for a Section 1332 waiver to help fund the reinsurance pool using pass-through funding. The state has posted a draft application for public comment and looks to be following the path of Alaska.
Oklahoma has undertaken the most ambitious 1332 waiver planning process since Vermont’s efforts at creating a single, unified system paused in 2015. Legislation passed in 2016 led to the creation of a task force to address low participation in the Marketplace and rising premiums. The task force activities have been robust and culminated with a concept paper that examines a number of policy options some of which would require a Section 1332 wavier and some that may be possible under current policy guidelines.
Oklahoma has taken a first step in its reforms with creation of a reinsurance model like Alaska and Minnesota as a first step in the 1332 waiver process, planning a more transformative proposal in the future. The legislation is now awaiting the governor’s signature.
Maine is also moving forward with creation of a reinsurance program to help stabilize rates in its individual market.The legislation, (signed by the Governor earlier this month,) authorizes the state to submit a 1332 waiver to support the program.
In other recent activity, the Montana legislature passed legislation creating a reinsurance fund, but Governor Steve Bullock vetoed that legislation, expressing concerns about authorizing the independently elected insurance commissioner to submit a 1332 waiver application without gubernatorial involvement. Other states are reviewing proposals as part of their legislative process.
While there is increasing activity in Section 1332 waivers, the requirements for applications, including explicit legislative approval, public comment, detailed actuarial and economic analyses, and a lengthy review process are still in place. Even with new encouragement from the Trump administration, states that want to develop a reinsurance plan for the 2018 plan year will need to act fast, and new activity is likely to be focused on plan year 2019 and beyond. But the flurry of recent activity demonstrates the high level of interest states have in strengthening their individual markets and the potential of Section 1332 waivers to support those efforts.