On August 21, 2017, Iowa submitted its application for a 1332 Stopgap Measure innovation waiver to the Departments of Health and Human Services and Treasury. An earlier version of this application was discussed at length in this blog in June. Although the most recent version of the application has cleaned up some of the procedural defects in the earlier submission, the substantive legal defects and practical problems posed by the proposal remain substantial. Many of the questions raised by earlier drafts also remain unanswered.

Section 1332 of the Affordable Care Act permits states to apply for waivers of certain provisions of the ACA to facilitate innovative state attempts to achieve the goals of the ACA by other means. But only specific provisions of the ACA can be waived under section 1332. Moreover, a state must ensure that a waiver program covers at least a comparable number of people as would have been covered under the ACA, with coverage at least as comprehensive and affordable as ACA coverage, and that it does so without increasing the federal budget deficit.

Iowa says that its individual market is in crisis. Although Iowa had asserted in initial drafts of its proposal that it would have no insurers in its individual market for 2018, one insurer, Medica, has stuck with the market. But Medica is requesting a 56 percent premium increase for 2018. The latest version of Iowa’s proposal claims that, although insurance might remain available for 2018, it will not be affordable for many Iowans. Indeed, Iowa projects that between 18,000 and 22,000 Iowans will drop coverage for 2018 unless drastic action is taken.

The State Of Iowa’s Individual Market

Although Iowa claims that this situation is an inevitable result of the ACA, it was likely not unavoidable. Unlike some other states, Iowa decided to allow individuals to keep transitional, “grandmothered” plans in 2014 and 41,000 Iowans retain these plans. Iowa also still has about 37,000 enrolled in grandfathered plans. As these enrollees are likely healthier than those in the marketplaces, this has undoubtedly undermined the stability of the ACA exchange, which currently has only about 54,000 enrollees.

Moreover, although virtually all of the nation’s Blue Cross/Blue Shield plans have participated in the exchanges from the beginning, Iowa’s Wellmark Blue Plan sat out 2014 and 2015 and has announced that it is withdrawing for 2018. Wellmark has a significant number of transitional and grandfathered plan members and will benefit significantly if these individuals move to the ACA compliant market and qualify for premium credits—which would be paid directly to Wellmark–under the waiver program. The Iowa waiver was apparently negotiated directly with Wellmark, which has promised to reenter the ACA-compliant market if the waiver is approved. It is likely to be a significant beneficiary of the program.

Finally, unlike other states like Minnesota or Alaska that have offered state funding to help stabilize problematic insurance markets, Iowa is offering nothing other than to help in redistributing federal funding.

Iowa’s Waiver Proposal

A Reinsurance Program

Iowa’s proposal has two components, both of which would be paid for by the federal funding that would otherwise have gone to ACA premium tax credits and cost-sharing reduction payments for low-income enrollees. First, it proposes to establish a reinsurance program. This would, in conjunction with the federal risk adjustment program which as of 2018 will contain a reinsurance component, cover 85 percent of claims exceeding between $100,000 and $3,000,000. Iowa projects that this program will reduce claims costs by 15 to 17 percent and significantly reduce premium increases across the individual market.

HHS has already approved a reinsurance 1332 waiver for Alaska and has encouraged other states to follow suit, so this part of the proposal is relatively uncontroversial.

Reallocating Cost-Sharing And Premium Assistance

The second part of Iowa’s proposal, however, could be much more problematic. The proposal would abolish cost-sharing reduction payments for low-income enrollees; it would reallocate the funds that would otherwise have been devoted to reducing cost sharing and providing premium assistance for lower-income marketplace enrollees to provide premium assistance for all individual market enrollees, regardless of income. Because the federal exchange, which has served Iowa, can only administer tax credits according to the schedules set out in the ACA, Iowa is also proposing to establish its own system for determining eligibility for premium credits and for paying them to insurers.

To simplify the administration of this system, all participating insurers would only offer one standardized silver level plan. Enrollees would no longer be able to choose plans with greater or lesser cost sharing. The new plans would cover all ACA essential health benefits and Iowa mandated services. The plans would have deductibles equal to their out-of-pocket limits, set at $7350 for individuals and $14,700 for families for 2018.

The new plans would cover a number of common services, with copayments only, before the deductible.  A primary care office visit would cost $35; a generic drug prescription, $10.  But an emergency room visit would cost $400 and inpatient hospital care would be fully paid for by the consumer until the deductible was met.   By contrast, a 94 percent actuarial value plan available to a consumer in Iowa with an income below 150 percent of poverty in 2017 might have a deductible of $100, a primary office visit copay of $30, and an out-of-pocket limit of $1200.

Consumers who are Iowa residents, United States citizens or nationals or lawful aliens, not enrolled in Medicare or Medicaid, not enrolled in employer coverage, and not incarcerated would be eligible for premium credits. The amount of credits would vary based on age and income, but would not be based on the actual cost of coverage.

Eligibility for premium credits would be determined by the Iowa Stopgap Measure Administrator, with income eligibility based on 2017 reported income. (Apparently an individual who lost a job or otherwise had a lower income for 2018 would be out of luck.) An applicant would be notified once eligibility was determined and could then enroll in coverage directly with a participating insurer or through an insurance agent or broker. The insurer would be paid the premium credit on a monthly basis and the enrollee would be responsible for the remaining premium.

Enrollment would be available during the 2018 open enrollment period, which lasts from November 1 to December 15. Individuals would not be able to apply for eligibility determinations until November 1, however, and the state would have up to ten days to provide notification of eligibility. Appeals of eligibility determinations could take up to 15 days. The actual time period available to individuals for enrollment, therefore, might be much less than 45 days.

Consumers who qualified would also be able to enroll in coverage during special enrollment periods, which largely mirror those available under the federal exchange. But consumers would only be eligible for some special enrollment periods, such as a permanent move or spousal abandonment, if they had not had a gap in coverage of more than 60 days during the preceding 12 months.

Potentially Problematic Areas

The Iowa waiver proposal raises a number of concerns. Iowa has now submitted an actuarial and economic analysis, which it initially represented it did not have time to complete, and did hold three public hearings and accept public comments, as required by the law. But the hearings were held before the final version of the proposal was available and the notice of the hearing did not explicitly refer to the loss of cost-sharing reductions, perhaps the provision of the proposal that would have the greatest effect. The Tribal Consultation notice did not mention that Native Americans, who are exempt from cost-sharing under the ACA if their income is below 300 percent of the poverty level or for services offered by the Indian Health Service, would now face deductibles of thousands of dollars.

The ACA requires that 1332 waiver applications and their implementation be authorized by state legislation. The Iowa waiver application claims general legislative authority for its provisions but acknowledges that no specific authorizing legislation exists, which the ACA would seem to require.

The 12-month continuous coverage requirement for special enrollment periods would require a waiver of the guaranteed availability requirement of the ACA, which does not permit the imposition of eligibility requirements unless otherwise authorized by the ACA. Guaranteed availability is not a provision that can be waived under 1332.

The ACA specifically requires that 1332 waivers ensure “cost sharing protections against excessive out-of-pocket spending that are at least as affordable” as under the ACA. Clearly, cost-sharing would dramatically increase for Iowans who now qualify for cost-sharing reductions. In particular, individuals who require hospitalizations, multiple visits to specialists, or specialty drugs, would rapidly find their care unaffordable. Alternatively, the cost of their care might simply become bad debt for doctors and hospitals.

The Iowa application asserts that these individuals would continue to enroll in coverage because of the generous premium credits Iowa would offer. However, the Congressional Budget Office in its analysis of Republican congressional proposals that would have eliminated cost-sharing reductions concluded that few low-income people would enroll in coverage with high cost sharing. Low-income consumers who might have enrolled in high actuarial value ACA plans might look at the high deductibles under the Iowa waiver plans and forego enrollment, even though the premiums would be lower than they would have been under the ACA. Comments on the Iowa proposal received from organizations like Disability Rights America, the National Alliance on Mental Illness, and the Iowa Hospital Association raised the cost-sharing affordability issue.

The ACA also requires that the number of people covered under a 1332 waiver proposal be comparable to those covered under the ACA. The Iowa application asserts that this would be the case, but its assertion is based on a number of assumptions that seem implausible. The first of these, just mentioned, is that consumers who now get greatly reduced cost-sharing because of the CSRs would continue to enroll with much higher cost-sharing.

Second, Iowa would not automatically reenroll any 2017 enrollees, but seems to assume that all current enrollees would return to actively enroll (and figure out the new enrollment procedures in a greatly shortened open enrollment period). This seems unlikely. Over 40 percent of those who enrolled in 2016 for 2017 coverage nationally were auto-enrolled.

The proposal also raises serious questions about deficit neutrality. Iowa proposes to offer premium credits to all enrollees regardless of income, increase premium credits for low-income enrollees over ACA levels, and establish a reinsurance program as well—and to do all this without increasing federal expenditures. The proposal would eliminate premium credit reconciliation: if consumers unintentionally underestimated their income, they would not have to pay the excess premium credits back. And individuals who were eligible for employer coverage or Medicaid could decline it and claim premium credits instead. How would this not increase federal expenditures?

Moreover, the proposal presents serious practical issues. Open enrollment begins in a little over two months. Under the ACA, a 1332 waiver proposal, once determined to be complete, must be opened for a federal public comment period, which has usually lasted 30 days. A proposal must be reviewed for compliance with ACA requirements by HHS, the Treasury, and the CMS Actuary, who have up to 180 days to do so. This process can take 180 days and would certainly take weeks if done properly.

If the proposal were approved, Iowa would need to stand up what is essentially a state exchange in a matter of days, something some states failed to do with three years’ lead time in 2013. Iowa would also have to locate, inform, and determine eligibility for tens of thousands of Iowans in a matter of days in November and early December. It would also presumably have to approve rates and certify health plans for ACA compliance, as it is not asking to waive ACA health plan requirements such as network adequacy and essential community provider contracting requirements.

Many of the ACA replacement proposals considered by Congress this summer would have allowed states great leeway in designing their own alternatives to the ACA. Those proposals met considerable resistance and were not enacted into law. The Iowa 1332 waiver proposal presents the Trump administration with a choice: It can recognize that the ACA remains the law of the land and insist on compliance with its requirements. Or it can allow states to rewrite the ACA to their own specifications without legal authority. If it takes the latter course, waiver proposals from other states that are unhappy with the ACA are sure to follow. This is a watershed moment.

Court Faults EEOC Justification Of Incentives For Employees To Share Medical And Genetic Information With Employers

In other news, on August 22, 2017 Judge John Bates of the federal district court for the District of Columbia decided to remand to the Equal Employment Opportunity Commission for further consideration its 2016 rules allowing employers to impose penalties of up to 30 percent of the cost of coverage on employees when they or their spouses refuse to turn over to their employers sensitive medical and genetic information by completing health information questionnaires. AARP had challenged the rules.

The regulations were adopted to interpret provisions of the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) that prohibit employers from collecting health or genetic information unless the provision of the information is voluntary. AARP had argued that employees do not “voluntarily” disclose information if they face a penalty that can amount to thousands of dollars if they fail to do so.

Judge Bates had in an earlier decision held that AARP had standing to bring the case. He reaffirmed and further elaborated on that conclusion in his August 22 decision. Judge Bates then proceeded to the motions for summary judgment that had been filed by both sides in the case.

AARP asserted that the level of incentives allowed by the EEOC’s ADA and GINA rules were inconsistent with the meaning of the term “voluntary.” The seniors’ organization also claimed that the EEOC had failed to explain why it had abandoned its earlier position that a decision to release medical or genetic information to an employer could not be voluntary if it were made in response to incentives offered by the employer, and why it had concluded that the 30 percent incentive level was permissible.

Recognizing that the term “voluntary” in the relevant statues was ambiguous, the court turned to the question of whether it should defer to the agency’s interpretation of the term. In answering this question, Judge Bates focused on the question of whether the agency had offered an adequate justification for its definition and for its change of position.

The court concluded the agency had failed to do so. The primary justification the EEOC had given for allowing the 30 percent incentive level was that this was the level of incentives permitted by the Health Insurance Portability and Accountability wellness regulations. But, Judge Bates noted, HIPAA and the ADA served different purposes, and in any event the permitted incentives were not in fact identical under the two sets of regulations. Other justifications the EEOC offered for the relevance of the HIPAA rules also made no sense to the court. Moreover, the EEOC failed to consider important questions that were relevant, such as whether a 30 percent incentive rule would in fact be coercive, in particular on lower-income workers.

Judge Bates further concluded that the EEOC had failed adequately to justify its GINA rule, in particular its provision that employees could be penalized for failing to release medical information about their spouses. Again, the agency failed to consider the coerciveness of its rule, and the possibility that disclosing medical information on spouses might result in genetic discrimination, contrary to the purpose of GINA.

Having determined that the agency had not given a reasonable explanation for its rules, Judge Bates remanded the case to the agency for further consideration. He did not, however, vacate the rules, the remedy that AARP had requested. He concluded that many employers had relied on the rules in setting up their wellness programs and employees had already disclosed protected information and received incentives under the programs. Vacating the rule at this point would be too disruptive. Rather the court asked the EEOC to provide within a month a schedule for its reconsideration of the rules.

The plaintiffs may well consider it a Pyrrhic victory to have won a remand to the Trump administration for reconsideration, with no definite deadline for reconsideration and the current rule remaining in place.