Administration Encourages States to Use Waivers to Restructure Health Coverage Despite Technical and Legal Hurdles
In late October, the Trump administration released guidance setting out its vision for the future of the state innovation waiver program authorized by section 1332 of the Affordable Care Act. At that time, I noted that the Trump administration was trying to achieve through administrative fiat what a Republican Congress had failed to accomplish through ACA repeal-and-replace legislation in 2017. On November 29, the Centers for Medicare and Medicaid Services (CMS) confirmed its intent to pursue repeal-and-replace through executive action with its release of a fact sheet and discussion paper describing in greater detail what it now calls “State Empowerment and Relief Waivers.”
Section 1332 of the ACA authorizes the U.S. Departments of Health and Human Services and Treasury to permit states to establish programs waiving certain provisions of the ACA as long as state proposals comply with section 1332’s “guardrails.” The guardrails require that a waiver state provide coverage that is as comprehensive and affordable as ACA coverage to at least a comparable number of its residents as would have been covered by the ACA, without increasing the federal deficit. Section 1332 authorizes the federal government to “pass through” federal funds that would otherwise have gone to pay for ACA premium and small-employer subsidies to states to fund waiver programs.
The Waiver Concepts Embody Failed Legislative Proposals
The November guidance and discussion paper describe four “waiver concepts” that states may consider for 1332 waiver proposals:
- Directing subsidies to defined-contribution individual accounts that can be used to pay for health insurance premiums and other medical expenses;
- Directing subsidies to a wider range of individuals than qualify for premium tax credits or cost-sharing reductions under the ACA, or calculating subsidies based on different factors (such as age) than those used by that ACA;
- Providing subsidies for forms of coverage that could not be subsidized under the ACA, including short-term plans that do not comply with ACA requirements; and
- Funding reinsurance programs or state high-risk pools for people with preexisting conditions.
These four concepts embody standard conservative proposals for restructuring health coverage, many of which were incorporated into Republican repeal-and-replace proposals rejected by the Senate in 2017. The concept of premium subsidies based on age, for example, was part of the American Health Care Act passed by the House of Representatives in 2017. Subsidies for health accounts were proposed by Senator Rand Paul (R–Ky.) and by the 2017 Cassidy-Collins bill, while the Cruz amendment to the Senate Better Care Act would have authorized “skinny plans” that did not meet ACA requirements. None of these proposals passed the Senate.
Although the concepts promote the policy goals endorsed by the Trump administration in its October waiver guidance, they are expressly contrary to the policies that Congress embraced in adopting the ACA, including section 1332, as noted by House Democratic committee leadership in a letter to HHS challenging the waiver guidance.
Implementation of the Concepts Face Technical Hurdles and Difficulties Complying with the 1332 Guardrails
It is not clear how much state interest there will be in pursuing these waiver options. The discussion paper describes in detail thorny problems states would have to resolve to build the considerable and potentially costly infrastructure necessary to make these options work. Options that depend on the federally facilitated exchange for assistance with enrollment or eligibility determinations could not be implemented before the 2021 plan year, by which time a new administration may be in place which could simply revoke the Trump administration guidance. Waivers granted under the Trump administration guidance could probably not be immediately terminated absent noncompliance with their terms, but a new administration could strictly monitor the effects of such waivers.
It is also far from clear how waiver proposals embodying the concepts could possibly comply with section 1332’s “guardrails,” even as reinterpreted by the Trump administration. Section 1332, for example, requires that waiver states “will provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable as” ACA coverage. Even if states only have to make affordable coverage “available,” as the Trump guidance provides, state premium subsidies or account contributions would have to take into account age, family size, income, and the actual cost of coverage to truly ensure that premiums and cost-sharing were as affordable as ACA coverage, which effectively considers all these factors. Channeling young and healthy individuals into skinny coverage would inevitably make ACA-compliant coverage less affordable.
Similar issues arise with the requirement that states provide coverage that is as comprehensive as ACA coverage. And it is difficult to see how states could expand availability of subsidies for premiums or consumer accounts and still ensure federal deficit neutrality. The concept paper fails to address these issues, other than stating repeatedly that state proposals must comply with the guardrails.
Proposals Implementing the Concepts Face Legal Hurdles as Well
Moreover, 1332 only allows waiver of certain ACA provisions and not of others. States cannot waive, for example, ACA provisions prohibiting insurers from refusing coverage or charging higher premiums to applicants because of preexisting conditions, or from excluding those conditions from coverage. In fact, CMS reiterates in the concept documents assurances that preexisting conditions will be covered. But the guidance would explicitly allow states to subsidize directly or through consumer accounts short-term plans that can exclude people with preexisting conditions. Likewise, CMS cannot waive the antidiscrimination provisions of the ACA, yet the guidance concepts would seem to permit subsidies for coverage that might discriminate based on age or sex. And while CMS cannot waive the ACA’s risk-adjustment program in which insurers with lower-risk pools of enrollees subsidize insurers with higher-risk pools, the concept guidance does not offer a clue as to how risk adjustment would function under the waivers proposed. An individual or entity injured by the grant of a waiver under the guidance could sue to block the implementation of the waiver.
Finally, the concepts are intended to implement the October guidance, which itself is arguably illegal because it makes significant substantive changes in the 1332 program without going through notice and comment rulemaking as required by the federal Administrative Procedures Act. The October guidance also adopts legally questionable and internally inconsistent interpretations of statutory terms such as “provide” or “coverage," though any challenge to the guidance will probably wait until its injurious effects can be assessed in the light of an approved concrete state proposal.
With the election of a Democratic House majority, congressional attempts to repeal and replace the ACA are at an end. The 1332 guidance is the clearest example yet that the Trump administration is determined to repeal and replace the ACA itself on a state-by-state basis without congressional action. Any state that takes up its invitation, however, is certain to face not only daunting technical, but also serious legal, challenges.