ACA Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

HHS Issues Guidance Relating ACA Section 1332 Waivers, Modifying the 1332 Guidance Issued By the Previous Administration

As per usual, there is a lot of “noise” out there on HHS’s recently issued guidance on the ACA Section 1332 Waivers. A lot of reaction, and – in my opinion – over-reaction. For example, ACA proponents were quick to criticize the guidance, arguing that it would lead to States offering “skimpy plans,” or it would allow States to “gut the ACA,” or it would allow States to “discriminate against people with pre-existing conditions.” My read of the guidance does NOT lead me to these conclusions.
- Analysis: The cornerstones of ACA Section 1332 – and the requirements that must be met before HHS will grant a 1332 Waiver – are known as the “4 Guardrails.” I describe these “4 Guardrails” this way: The first – and arguably the most important – Guardrail is referred to as the “Comprehensiveness Guardrail.” Under the Comprehensiveness Guardrail, the coverage called for under the 1332 Waiver must be “at least as comprehensives as an essential health benefit (EHB) plan.” The second guardrail – known as the “Affordability Guardrail” – says that the coverage must provide the same level protections for cost-sharing and out-of-pocket expenses as required under the ACA. The third guardrail – known as the “Coverage Guardrail” – requires the State to provide coverage to the same amount of people who obtained coverage on account of the ACA. And the fourth guardrail – known as the “Budget-Neutral Guardrail” – says that the Waiver cannot increase the Federal deficit. It’s no secret that the previous Administration was NOT a fan of the ACA Section 1332 Waivers. In short, the previous Administration did NOT want States to modify the ACA in any way. Soooo, the previous Administration interpreted the statute narrowly when developing 1332 guidance. As a result, the previous Administration’s 1332 guidance turned out to be even more constraining than the statute itself. Fast-forward to today. It’s no secret that the current Administration wants States to modify the ACA through a 1332 Waiver. Soooo, it is no surprise that the current Administration is interpreting the statute expansively so as to provide more flexibility for States so they can get their 1332 Waiver request approved. But does this mean that States can now offer “skimpy coverage”? In my opinion, NO. Can States “gut the ACA”? Again, NO. What about “discriminating against people with pre-existing conditions”? Come people, really. Let me level-set here by saying this: HHS’s recently released 1332 guidance does NOTHING to change the Comprehensiveness Guardrail. As a result, to get a Waiver approved, a State must STILL offer coverage that is as good as an EHB plan. Remember, an EHB plan is an ACA-compliant plan. And also remember, an ACA-compliant plan cannot deny a person coverage if they have a pre-existing condition. Soooo, no discrimination. If there was discrimination, HHS would NOT approve the Waiver. In addition, an EHB plan covers the 10 “essential health benefits,” plus whatever benefit mandates the State added to what is now called the “EHB-benchmark” plan. Because the Comprehensiveness Guardrail was NOT changed, States are STILL required to offer coverage that is at least as comprehensive as an EHB plan. Which means, States CANNOT offer non-ACA-compliant plans in place of ACA-compliant plans. More specifically, a State CANNOT say “hey, we are no longer requiring ACA-compliant plans to be sold…instead, we are only going to offer short-term health plans (or in Idaho’s case, “Freedom Plans”).” If a State did attempt to only offer non-ACA-compliant plans through a 1332 Waiver, HHS would NOT and could NOT approve it. Soooo, we are NOT going to see States trying to offer “skimpy plans” or “gut the ACA.”

Then What Are We Going to See from States? Does This 1332 Guidance Really Provide That Much Flexibility?

Picking up on my points above, HHS in NO way changed the Comprehensiveness Guardrail standard. States are STILL required to offer coverage that is as good as an EHB plan, or the State will NOT get their Waiver approved. But what HHS is saying through this new guidance is this: When analyzing the Comprehensiveness Guardrail – and also the Affordability Guardrail – HHS will focus on the “type” of coverage people have “access” to (as opposed to the “type” of coverage people have “actually purchased”) for purposes of meeting the Coverage Guardrail. What?
- Analysis: HHS appears to be trying to remedy what the Department viewed was a flaw in the previous Administration’s guidance. That is, according to the previous Administration’s guidance, if a State made available less comprehensive coverage – like short-term health plans – which resulted in fewer people enrolling in an EHB plan, the State would be found to have violated the Coverage Guardrail because not enough people were covered by “comprehensive” and “affordable” coverage as were covered under the ACA. To remedy this – and to allow States to offer BOTH (1) EHB plans and also (2) other “types” of coverage like short-term plans – HHS is saying that the Department will STILL approve a State’s Waiver even if (1) less people are covered by an EHB plan and (2) more people are covered under other “types” of coverage like short-term plans. Again, HHS is STILL requiring EHB plans to be made available, BUT HHS is clarifying that people are NOT required to ONLY be covered by an EHB plan to get the Waiver. Rather, people can be covered by other “types” of coverage like a short-term health plan or more comprehensive coverage offered through an AHP. HHS emphasizes this point when the Department explains: “This [guidance] ensures that State residents who wish to retain coverage similar to that provided under the ACA can continue to do so, while permitting a State [1332 Waiver] to also provide access to other options that may be better suited to consumer needs and more attractive to many individuals.” Stated differently, what HHS is now saying is this: Coverage that is less “comprehensive” as the Comprehensive Guardrail requires CAN be offered – and counted toward the number of people who have coverage for purposes of meeting the Coverage Guardrail – so long as “comprehensive” coverage that DOES satisfy the Comprehensiveness Guardrail is ALSO offered to State residents. This means that States can provide “access” to less comprehensive, yet affordable coverage – but also comprehensive, yet less affordable coverage – and still get their Waiver approved. One troubling thing coming out of the guidance is this: HHS said that a Waiver that makes coverage “much more affordable for some people and slightly more costly for a larger number of people” would likely still satisfy the “4 Guardrails.” In practice, this means that if a small percentage of people exit the “individual” market because they are given access to short-term health plans – which are more affordable, but less comprehensive – and their departure results in higher premiums for a larger percentage of the remaining population in the “individual” market, a 1332 Waiver request may still be approved if the increase in premiums is “slight.” We do not, however, know what “slight” means. It certainly does not mean a 10% increase, but does it mean a 3%? So the question on this new rule is this: Is this good policy? In my opinion, this new policy is NOT “discrimination,” although that is what most critics are contending. Instead – to me – this policy is all about giving people “choice.” And – for right or wrong – HHS is recognizing that by giving people this “choice,” some people may be disadvantaged. And in some cases, more people may be disadvantaged than the number of people helped. So is that fair? Personally, I am having trouble deciding one way or another because I don’t like to see policies that create a greater number of losers than winners, even if those losers are only “slightly” disadvantaged. That is what the ACA did, in my opinion. If you were eligible for Medicaid or the premium subsidy for an Exchange plan, you were a winner (say 20 million people). But if you were everyone else, you were disadvantaged through additional taxes that were pass-through and/or higher premiums for coverage (about 180 million people). Last comment on coverage-related issues: HHS’s guidance also said that the Department would approve a Waiver even in cases where there might be an initial, temporary reduction in coverage, but where the State can show that in the long-run, “access” to comprehensive AND affordable coverage will be as good as ACA levels, or better. In other words, HHS may approve a Waiver where on Day 1, coverage goes down, BUT over life the 5-year Waiver, coverage meets or exceeds the ACA’s coverage levels prior to the Waiver submission. While critics will jeer at this, I think this makes practical sense. If you were to ever ask people who drafted legislative proposals which were “scored” by the Congressional Budget Office (CBO), they will tell you that it is IMPOSSIBLE to balance everything out on a year-by-year basis. BUT, if over the course of the 10-year budget window things got better – and even exceeded the baseline – then you know your legislation was good policy.

Anything Else In the 1332 Guidance?

The 1332 guidance also: (1) made some clarifications to the “Budget-Neutral Guardrail,” (2) opined on a State’s authority to submit a 1332 Waiver request, and (3) the guidance discussed how States can set up their own State-based Exchanges and leverage Healthcare.gov and “enhanced direct enrollment.”
- Analysis: With respect to the Budget Neutral Guardrail, HHS said that the Waiver does NOT have be budget neutral on Day 1 of the Waiver. Instead, if the Waiver ends up being “budget neutral” over the 5-year life of the Waiver, the Budget Neutral Guardrail would be satisfied. Similar to coverage rule discussed above, this new rule makes a ton-of-sense. It made so much sense that BOTH Sen. Alexander (R-TN) and Sen. Murray (D-WA) agreed to this same change when these 2 Senators were trying to get their bi-partisan “ACA market stabilization” legislation enacted. I have not heard much criticism of this change. However, critics did jump all over HHS’s decision to allow a State Governor to issue an Executive Order authorizing the State to develop and submit a 1332 Waiver request. BUT, a State Governor is NOT given cart blanche authority here. The State Legislature MUST have already passed a law that authorizes the State’s executive to implement and enforce the ACA. Previously, a State Legislature had to pass a State law giving the Governor the authority to pursue a 1332 Waiver. Critics of this policy change feel that in States where there is divided government (i.e., a Democratic State Legislature and a Republican Governor), a Republican Governor may develop and submit a 1332 Waiver that the State Legislature would have never agreed to. HHS also encouraged States to work with “private industry partners” to develop their own consumer-facing enrollment Web Site, while leveraging Healthcare.gov’s back-end technology. In other words, HHS said that for those States that want to establish their own State-based Exchange or even a non-Exchange enrollment function, a State could – and should – work with a Web-Broker Entity (WBE) to enroll consumers through HHS’s “enhanced direct enrollment” functions, which uses the Federal Data Services Hub and Healthcare.gov’s back-end “application program interfaces.” You may recall that I have continually explained that this Administration would like to transition Healthcare.gov to a private-sector enrollment platform, where a WBE could enroll consumers through a public-facing website through the “enhanced direct enrollment” technology, which utilizes the existing Federal Data Services Hub and other back-end technology built by the previous Administration. But here, the Administration is actually encouraging States to do this, and partner with a private-sector WBE to enroll consumers through “enhanced direct enrollment,” utilizing the Federal government’s back-end technology. I will be curious to see whether and when States take-up HHS on their idea here. Lastly, HHS informed States that the IRS is limited in its ability to administer specific ACA tax provisions that differ from the existing law tax structure. As a result, a State could waive one of the ACA’s taxes entirely. BUT, the State cannot change the tax in a way that changes the tax administration of the tax provision. This reminder is most relevant when it comes to States wanting to modify the ACA’s premium subsidy structure. For example, some States would like to modify the ACA’s premium subsidy structure to give a higher subsidy amount to individuals between ages 18 and 35 and a lower subsidy amount to people 50 to 64. In this case, the IRS could NOT administer this change. BUT, a State could decide to administer this premium subsidy structure through its own State Revenue Department. That is what Iowa proposed before the State withdrew its 1332 Waiver request last year.

What Are the Implications Here?

It is important to remember that seeking a 1332 Waiver is VOLUNTARY. Soooo, States that do not want to bother satisfying the rules set forth in this new guidance – because, for example, they feel this new guidance is too lenient on things like the Coverage Guardrail or because they do not like the fact that the Governor can by-pass the Legislature – these States can operate under the previous Administration’s guidance. No one is stopping them. Why is this important? Because it should be a reminder to those critics of this guidance that HHS is not “gutting the ACA” because States do NOT have to follow what HHS is saying here.
- Analysis: Also, as stated, even States that DO rely on this new guidance to get their 1332 Waiver approved, these States are STILL required to offer coverage that satisfies the Comprehensiveness AND Affordability Guardrail. The only difference between this guidance and the previous Administration’s guidance is that States that offer “other types” of health coverage – like AHPs – get credit for allowing this “type” of health coverage to be offered within the State. States will get credit for short-term health plans too, provided the availability of short-term health plans has only a “slight” impact on the State’s “individual” market. Which brings up another point to make: If a State were to rely heavily on short-term health plans as a coverage option, the availability of these plans may have more than a “slight” impact on those consumers who remain enrolled in an “individual” market plan. To me, this State’s 1332 Waiver would NOT get approved. So to me, it is NOT like States can go hog-wild and just offer less comprehensive plans. Another reminder to critics. What this guidance will do, however, is that it will result in disparity between the States. Picking up on my lead point above, States do NOT have to pursue a 1332 Waiver under this new guidance. And most States will NOT. BUT, there will be some States that do pursue a 1332 Waiver due to the new flexibility HHS is providing. But will this really cause wide-spread disparity of coverage within these few States relative to all of the other States that stick with the status quo? My answer: NO. Why? Because again, the “4 Guardrails” STILL apply, most importantly, the Comprehensiveness Guardrail.