ACA Update

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

HHS Issues “Model” ACA Section 1332 Waivers

Anything this current Administration does on matters relating to the ACA is cast as “sabotage.” Actually, that’s not true. As I mentioned last week, the proposed HRA regulations were not characterized as “sabotage.” That’s because those regs are NOT “sabotage.” So, at least as it relates to the new HRA rules, I believe the critics got it right. BUT, are the recently released “model” 1332 Waiver “sabotage”? In my opinion, no. But I will point out one thing below that I do not much care for (which – in my opinion – opens up the door for critics to argue “sabotage”).
- Analysis: In short, HHS suggested 4 “models” that States may consider adopting and including in a 1332 Waiver application. These models are referred to as: (1) the State-Specific Premium Assistance model, (2) the Adjusted Plan Options model, (3) the Account-Based model, (3) the Risk Stabilization Strategies model. Below, I will discuss certain aspects of the State-Specific Premium Assistance model and the Adjusted Plan Options model. I do not talk much about the Account-Based model, nor do I discuss in detail the Risk Stabilization Strategies model. I will try to cover these 2 models in future updates. Below, I will also respond to what you have been reading in news articles which has been: (1) The “model” Waivers are going to increase costs for lower-income individuals and/or people with pre-existing conditions and (2) HHS’s 1332 guidance released in October – as well as the Department’s “model” Waivers – violate the law and will be subject to a legal challenge.

States Can Develop Their Own Premium Subsidy Structure Under HHS’s Suggested “Models”

Let me start my discussion by emphasizing this: The statutory language set forth under ACA section 1332 allows a State to “waive” certain aspects of the ACA. One aspect of the ACA that can be “waived” is the ACA’s premium subsidy rules. Another aspect of the ACA that can be waived is the ACA Exchange requirements. And yet another aspect of the ACA that can be waived is the “Qualified Health Plan” (QHP) rules. Attached is a summary of ACA section 1332 that I put together way back in the day (in like 2012 or 2013). It gives you a list of all of the aspects of the ACA a State can “waive” through a 1332 Waiver.
- Analysis: Now that we have established that a State can permissibly “waive,” among other things, the ACA’s premium subsidy structure, what kind of “alternative” premium subsidy structures can a State put into place? For one, a State could move away from the ACA’s premium subsidy structure – which is a structure that determines the subsidy amounts based on a consumer’s income – to a “flat tax credit” that varies by age. For years, BOTH left-leaning and right-leaning policy experts have suggested that a “flat tax credit” that varies by age is superior to an income-based subsidy. Why? Because there is very little administrative complexity in determining the amount of the “flat tax credit” that simply varies by age, as compared to calculating a subsidy amount based on a consumer’s income. In addition, with an income-based subsidy, there will always be a “subsidy cliff,” where a consumer who makes $1 more than the cut-off gets NO subsidy. However, income-based subsidies are superior to a “flat tax credit” because lower-income individuals are provided greater financial assistance. In theory, I am partial to a “flat tax credit” that varies by age. But the reality is that lower-income individuals need more help when it comes to paying for health coverage. So, I think the right policy is an income-based subsidy structure, despite its flaws. And I think most if not all States will agree. When it comes to an income-based subsidy, States could adopt an “alternative” premium subsidy structure that gives consumers earning more than 400% of the Federal Poverty Level (FPL) a subsidy for the first time. OR, a State could give a higher premium subsidy amount to younger individuals. Why would a State want to adopt these “alternatives”? Well for one, we all know that the biggest losers under the ACA are people in the “unsubsidized” individual market. So, to help these individuals pay for the escalating cost of “unsubsidized” individual market plans is to provide them with a subsidy. We also know that under the ACA, younger individuals are subsidizing older individuals. Some believe this is good policy. I abstain from telling you what I think, but I will say this: Because most younger individuals are paying more under the ACA than they would have otherwise paid, most young people are NOT purchasing health coverage, and therefore, they are NOT entering the risk pool. This has produced a BAD result for the ACA’s newly reformed markets. In other words, the fact that younger people have NOT entered the risk pool has resulted in an “unbalanced” market. This “unbalanced” market has contributed to the sky-rocketing premiums over the past 4 years (note, the perpetual “unbalanced” market is not the only reason for the premium increases, but it is certainly is one of the primary reasons for the increases). Why would a State want to give younger people more money to purchase health insurance? As you now know, the ACA’s approach to encouraging younger individuals to enter the newly reformed risk pool was penalizing them for failing to obtain health coverage through the “individual mandate” penalty tax. Well, we all saw how that worked…or shall I say, did NOT work. Soooo, why not take the “carrot” approach and incentivize younger individuals to enter the risk pool by giving them more money to purchase health coverage? It makes a lot of sense to me. And, behavioral economics seem to tell us that a “carrot” – as opposed to a “stick” – is a more effective way to get people to do something. States certainly need to do something to get younger/healthier people into their markets because it ain’t happening now (nor will it happen if the status quo is maintained).

Does Developing an “Alternative” Premium Subsidy Structure Violate the ACA?

My answer: No. Why? Because – as stated – the statutory language of ACA section 1332 allows a State to “waive” the ACA’s premium subsidy rules. The real question to ask is this: Will any of these “alternative” premium subsidy structures fail to satisfy the 4 “Guardrails” under 1332? Remember, the State MUST satisfy (1) the “Comprehensive Guardrail,” (2) the “Affordability Guardrail,” (2) the “Coverage Guardrail,” and (4) the “Budget Neutral Guardrail.”
- Analysis: In the case of developing “alternative” premium subsidy structures, the “Guardrails” that States must worry about the most is the “Affordability Guardrail” and the “Budget Neutral Guardrail.” Why? Because if the new premium subsidy structure increases costs for lower-income individuals (because, for example, the money used to give a subsidy to people above 400% of FPL reduces the amount of the subsidy offered to low-income individuals), then this would VIOLATE the “Affordability Guardrail” under section 1332, which means HHS would NOT approve this State’s Waiver request. Same is true if a State decided to increase the premium subsidy amount for younger individuals, and correspondingly reduce the premium subsidy amount for older individuals. This would increase the cost of health coverage for these older individuals, which would – again – VIOLATE the “Affordability Guardrail,” which means – again – HHS would NOT approve this State’s Waiver request. BUT, let’s say there is a way where this State can give a subsidy to people above 400% of FPL without reducing the subsidy amount for low-income individuals? In this case, HHS would APPROVE this Waiver, provided the other 1332 “Guardrails” are met. Same is true if a State could increase the premium subsidy amount for younger individuals, while also keeping the premium subsidy amounts for older individuals the same. How could a State do it? Well for one, a State could just increase the government spending to pay for the subsidies for people above 400% of FPL or for younger individuals, while also keeping the same, current subsidy amounts for lower-income or older individuals in place. BUT, by simply increasing government spending, the State would fail to satisfy the “Budget Neutral Guardrail,” so this is obviously NOT an option. Any other options? Yes. States – through their 1332 Waiver – can produce savings, which can then be used by the States to pay for other aspects of their health care reforms set forth in their Waiver application. How can a State produce savings? Through, for example, a reinsurance program, which has been shown to reduce premiums. How does a reduction in premiums produce savings? As you have heard me explain before, if a reinsurance program reduces premiums in a particular State’s market, the amount of money the Federal government would otherwise spend on the ACA’s premium subsidies will go down. And – according to section 1332 – a State is able to recapture the delta between (1) the amount of money the Federal government would otherwise spend on the ACA’s premium subsidies pre-Waiver and (2) the amount of premium subsidy spending produced by the 1332 Waiver and the reinsurance program. This is called “pass-through” funding. Equipped with this “pass-through” funding, States can use this money to pay for giving people above 400% of FPL a premium subsidy for the first time, while protecting low-income individuals and maintaining the current premium subsidy amounts for them. Or, a State could plus-up the premium subsidy amount for younger individuals, while holding older individuals harmless. Note, States could also produce savings by coupling their 1332 Waiver with an 1115 Medicaid Waiver. States are now able to share any combined savings produced under these respective Waivers, which is another option for States, and another option to offset the increased government spending associated with these “alternative” premium subsidy structures. The bottom-line is this: Adopting these “alternative” premium subsidy structures can indeed be done without disadvantaging lower-income and/or older individuals, despite what the critics are saying. It certainly won’t be easy for a State to pull it off. But, if a State is ambitious, they can definitely do it without creating their own losers under their new reforms. Importantly, I believe that both of these “alternative” premium subsidy structures would improve the current individual market. For example, more people who are now “sitting on the sidelines” due to the high costs in the “unsubsidized” individual market may re-enter the risk pool. In addition, incentivizing younger individuals to enter the risk pool would start to balance out the current “unbalanced” market.

Can States Allow Consumers to Use a Premium Subsidy to Purchase a Short-Term Health Plan or an Employer-Sponsored Plan?

Another suggestion in HHS’s “model” Waivers is for a State to allow its constituents to use a premium subsidy to purchase health coverage that is something other than an ACA Exchange plan. In this case, consumers could use the premium subsidy to purchase a short-term health plan or an employer-sponsored plan.
- Analysis: Critics of this “model” Waiver argue that this would violate the ACA. So would it? My answer: I do not believe so. Why? Because, as part of the statutory authority to “waive” the ACA premium subsidy structure, a State is also permitted to “waive” the requirement that a premium subsidy can ONLY be used to purchase a health plan sold through an ACA Exchange. In addition, the statutory language of ACA section 1332 allows a State to “waive” the “Qualified Health Plan” (QHP) rules, which is the ONLY type of health plan that can be purchased with an ACA premium subsidy (hereinafter referred to as an “ACA Exchange QHP”). So, contrary to what the critics say, because the statute allows States to “waive” these ACA requirements, this means that a State can indeed allow its constituents to use a premium subsidy to purchase health coverage that is something other than an ACA Exchange QHP. How would the State “fund” the premium subsidy? A State could choose to fund the premium subsidy with State taxpayer dollars. In my opinion, this approach should never call into question whether giving people a premium subsidy to purchase a health plan other than an ACA Exchange QHP violates the ACA. Why? Because I believe a State can do this now, even without a 1332 Waiver. BUT, if a State uses Federal taxpayer dollars, is this a problem? Again, I do not believe so. Why? To me, it all comes down to (1) “waiving” the requirement that the premium subsidy can ONLY be used to purchase an ACA Exchange QHP and (2) a State’s ability to use “pass-through” funding for whatever it wants under its 1332 Waiver. What I mean is this: I believe a State can indeed use Federal taxpayer dollars to “fund” its premium subsidies that can be used to purchase short-term health plans and/or employer-sponsored plans so long as these Federal taxpayer dollars are in the form of the “pass-through” funding dollars, coupled with the “waiver” of the requirement that premium subsidies can only be used to purchase an ACA Exchange QHP. Now, I have read some commentary suggesting that if consumers are able to purchase a short-term health plan or an employer-sponsored plan with a premium subsidy, that this somehow violates certain requirements under the ACA that are NOT “waivable” under the statutory language of ACA section 1332. In particular, these policy experts questioned whether allowing consumers to use Federal taxpayer dollars to purchase a short-term health plan violated the ACA’s protections for pre-existing conditions and the prohibition against denying a person coverage (i.e., guaranteed issue). These experts also wondered whether ACA section 1557 – which sets forth specific non-discrimination requirements and is NOT “waivable” under 1332 – would be violated. Here is my response: The ACA itself specifically exempts short-term health plans from ALL of the ACA’s “consumer protections” and “coverage requirements,” which includes the pre-existing conditions protections, guaranteed issue, and section 1557’s non-discrimination rules. So, if a short-term health plan is NOT subject to these ACA requirements in the first place, how can these requirements be violated? Stated differently, if these ACA requirements do not apply in the first place, it should not matter whether these requirements are “waivable” under section 1332 or not. As a result, I do not see any legal issues here. If the premium subsidies are used to purchase an employer-sponsored plan, this – also – should NOT present any problems. Why? Because employer-sponsored plans generally meet these requirements, or these requirements are not imposed on employer-sponsored plans in the first place. So, there should be no problems even if the above stated requirements are not “waivable” under section 1332.

The Debate Over Protecting People With Pre-Existing Conditions

I don’t want to get too in depth about this issue, but because everyone is talking about pre-existing condition protections – and whether HHS’s 1332 guidance and/or “model” Waivers are an attack on pre-existing conditions – I wanted to ask you the following question:
- Analysis: If a consumer can purchase (1) a health plan that meets ALL of the ACA’s requirements (including the pre-existing condition protections) AND ALSO (2) a health plan that is NOT required to meet all of the ACA’s requirement (including the pre-existing condition protections), is this consumer being denied their right to the pre-existing condition protections under the ACA?? If you answer NO to this question (i.e., you do NOT believe that this consumer is being denied their right to the pre-existing condition protections under the ACA), then it is likely that you are okay with HHS’s recently released 1332 guidance and HHS’s “model” Waivers. This is because under HHS’s recently released guidance – and also HHS’s “model” Waivers – HHS is interpreting the law to say that so long as a consumer has “access” to an ACA-compliant plan that includes the pre-existing condition protections, the ACA is NOT violated even if this same consumer has access to a non-ACA-compliant plan (like a short-term health plan). If, however, you answered YES to the above question (i.e., you believe that if people have a choice between purchasing an ACA-compliant plan (with the pre-ex protections) and a non-ACA-compliant plan (with no pre-ex protections), that this is an ACA violation), then you likely believe that HHS exceeded their authority in issuing the Department’s 1332 guidance back in October. And, you believe that if a State adopts a “model” Waiver to allow a consumer to purchase a short-term health plan with some form of a premium subsidy, then this State will have violated the ACA. It may come as no surprise, but I answer my own question above in the negative. That is, I believe that if a consumer can purchase an ACA-compliant plan that includes the pre-existing condition protections, this consumer is NOT being denied their right to the ACA’s pre-existing protections because they can also purchase a non-ACA-compliant plan (like a short-term health plan). BUT, I want to renew my continued refrain which is: I do NOT like short-term health plans. I do NOT think that short-term health plans provide adequate enough coverage, and I agree that it is NOT in a consumer’s best interest to buy this type of plan as a replacement for major medical coverage. BUT, I do believe people have the right to “choose,” and as long as people have the ability to buy comprehensive coverage – side-by-side with this non-comprehensive coverage – I believe adequate protections are being made available. Having said all of that though, I believe that by promoting the purchase of short-term health plans, HHS is opening itself – and the President – up to charges that they are trying to “sabotage” the ACA. I suppose I understand why HHS included short-term health plans in their “model” Waivers, but I think HHS did itself a disservice when it comes to this ongoing debate about pre-existing condition protections (and is something that could have been avoided).

Is HHS’s October 1332 Guidance – Along With the “Model” Waivers – Illegal?

Critics argue that HHS’s 1332 guidance released in October – along with the recently released “model” Waivers – are ripe for a legal challenge (because they argue that the guidance and the “models” are illegal). Here is my response is this: First of all, anyone can sue anyone, so a person or an entity has every right to file a lawsuit if they want to. BUT, I find it hard to believe that any such legal challenge against the October guidance or the “model” Waivers will be successful. Let me explain why:
- Analysis: In 2015, the Obama Administration issued guidance on section 1332, clarifying what a State can and cannot do when it comes to satisfying the 4 “Guardrails.” The definitional parameters set forth in the 2015 guidance were derived from the Obama Administration’s interpretation of the statute. After reading the 2015 guidance, I personally felt that the Obama Administration took a very narrow interpretation of 1332’s statutory language (essentially further constraining an already constraining statute). Despite my reaction to what the Obama Administration came up with, I believed – and I continue to believe – that the Obama Administration had the authority to interpret the statute in the manner that it did. Same goes for the Trump Administration’s HHS. That is, the current HHS has the discretion to interpret the statute – just like the Obama Administration’s HHS did – and I believe that the Trump HHS acted within its authority. Yes, the October 1332 guidance deviates from the 2015 1332 guidance. BUT, there is generally NO prohibition against developing guidance that conflicts with prior guidance. Specifically, the Supreme Court has held that a Federal Department is free to issue a new interpretation of the statute at any time, even if the new interpretation conflicts with the old interpretation. The Supreme Court has further held that an agency or Department is NOT required to use notice-and-comment procedures set forth under the Administrative Procedures Act (APA) “when it wishes to issue a new interpretation of a regulation [or statute] that deviates significantly from one the agency [or Department] has previously adopted.” Now, the only way the current HHS can be found to have violated the law is if their new interpretation of section 1332 is “unreasonable.” Critics of the October 1332 guidance argue that the current HHS’s interpretation is indeed “unreasonable.” However, proving to a Court of law that the interpretation is “unreasonable” is a very high bar to meet. I for one do NOT believe that critics of the current Administration will be able to get over this high bar, and therefore, I do not foresee a Court of law finding that HHS’s actions here were “unreasonable.” Here is another thing to consider: Some people are saying that the contents of HHS’s “model” Waivers are eerily similar to some of the “replace” proposals that were included in the failed ACA “repeal and replace” legislation. They further contend that this is evidence that HHS is trying to re-write the statute to do what Congress failed to do, which is a NO-NO under the law (i.e., HHS cannot change the statute through administrative means). Here are my quick thoughts on this: If you recall, at the beginning of 2017, both HHS and Congress were openly cheering 1332 Waivers as a way to change the ACA. HHS even issued a “checklist” for satisfying the 4 “Guardrails,” which was intended to make it easier for States to apply for a 1332 Waiver. But, come Spring time – and throughout the Summer of 2017 – it was radio silence on 1332 Waivers. Why? Because the Administration had a change-of-heart and they were concerned that if Congress believed that States could change the ACA – through a 1332 Waiver – the momentum to “repeal and replace” the ACA would dissipate, and Congress would never get around to fully repealing the law. Why was the Administration concerned? Because – ironically – many of the “replace” ideas pursued by Congressional Republicans could have been accomplished through a 1332 Waiver. Soooo, now that Congressional Republicans have indeed failed to “repeal and replace” the ACA, HHS is simply reminding States of ideas that States could have adopted on their own all along. Lastly, the “model” 1332 Waivers are NOT law. They do NOT change the statute. Nor are the “models” even guidance telling stakeholders how to comply with the law. Rather, the “model” 1332 Waivers are merely suggestions that States may or may not adopt. Period-end-of-story.

Another Indication That HHS Wants To Move Away From an ACA Exchange’s Public-Facing Enrollment Function

You have continually heard me say that in a perfect world, this Administration would outsource the public-facing enrollment function for Exchange plans to private-sector companies. But, we do not live in that perfect world. As a result, this Administration is stuck with Healthcare.gov whether they like it or not. This Administration is trying, however, to offer a private-sector option when it comes to enrolling in an Exchange plan through Healthcare.gov. By allowing Web-Broker Entities (WBEs) to facilitate enrollment through “Enhanced Direct Enrollment” (EDE). Unfortunately, things are moving a bit slow on the EDE-front, and neither HHS nor the private-sector companies interested in EDE are happy with the fact that EDE-enrollment is not yet fully functional.
- Analysis: Notwithstanding these frustrations, HHS is suggesting to States – through the “model” Waivers – that they should outsource their own public-facing enrollment functions to WBEs. In this case, HHS is suggesting that the States can build their own premium subsidy eligibility infrastructure or States should contract with HHS to perform the back-end eligibility determinations through the Federal Data Services Hub. In truth, the only way to make the “alternative” premium subsidy structures discussed above work is if a State builds their own premium subsidy eligibility infrastructure or the State contracts with HHS to perform the back-end eligibility determinations through the Federal Data Services Hub. Both of these exercises will come with a cost. That is, a State would have to pay consultants and IT companies to build-out their own premium subsidy eligibility infrastructure. States could leverage their current Medicaid enrollment systems, but that may not be enough. Alternatively, States could leverage the Federal government’s IT infrastructure that has already been built. Based on precedent, an argument can be made that any costs paid to HHS to perform the back-end eligibility determinations through the Federal Data Services Hub would range from 1.5% to 3% of premiums. That, however, may still be too expensive for States. I mention this aspect of the “model” Waivers at the end of my update to say this: If a State cannot build their own premium subsidy eligibility infrastructure, or the State does not want to contract with HHS to perform the back-end eligibility determinations through the Federal Data Services Hub, I have trouble seeing how a State can adopt HHS’s “model” Waivers. In the end, maybe the critics do not have to threaten a legal challenge as a way to discourage States from moving forward with adopting these “models.” The path forward may be too daunting for States to operationalize HHS’s suggested ideas. Only time will tell.