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Achieving Universal Coverage

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A Permanent Boost to Federal Premium Assistance Could Change State Approaches to ACA 1332 Waivers

The American Rescue Plan (ARP) dramatically increases the availability and generosity of federal premium assistance for people who obtain health insurance through the Affordable Care Act’s (ACA) marketplaces. Consumers already eligible for premium tax credits will get more financial help. In addition, for the first time, premium costs will be capped for individual market consumers at all income levels. These temporary federal reforms will lower premiums for millions of Americans, likely reduce the number of uninsured by 1.3 million in 2022, and could produce larger and long-lasting coverage gains if made permanent.

Were Congress to make the ARP’s premium subsidy enhancements permanent, an ancillary but significant benefit would be to give states more flexibility to address other barriers to care. One way states can capitalize on this opportunity is by reconsidering the ACA’s Section 1332 waiver program. If permanent improvements are made to premium affordability, the waiver program could grow beyond its current role — facilitating premium-stabilizing reinsurance programs — to help states tackle health systems costs and reduce the burdens of high cost sharing.

Using Section 1332 Waivers to Innovate

Section 1332 of the Affordable Care Act authorizes states to apply for “innovation” waivers to modify specific provisions of the ACA and makes available federal funds to support states’ efforts. The waiver program offers states flexibility, but not free rein. Section 1332 prohibits waivers that would undermine the ACA’s goals by decreasing coverage take-up or reducing the comprehensiveness or affordability of coverage.

What Are Section 1332 Waivers?

  • Section 1332 of the ACA allows states to apply to waive certain provisions of the health law to implement their own programs to improve health insurance coverage.
  • States can waive rules governing the ACA’s marketplaces, premium and cost-sharing subsidies, and essential health benefits, among others.
  • States may not waive ACA protections for people with preexisting conditions, prohibitions on health status and gender rating, and nondiscrimination rules.
  • States can access federal funding under the program. If a state’s waiver plan is forecast to reduce federal spending on coverage subsidies, the federal government will pass through those savings to the state for the purpose of implementing its waiver.
  • The program does not give states carte blanche to waive federal law. A waiver cannot be approved unless it complies with statutory “guardrails” that disallow any proposal likely to undermine comprehensive, affordable coverage, cover fewer people, or impose additional costs on the federal government.
  • States must have statutory authority to submit the waiver application to the federal government and implement the waiver program.

In 2018, the Trump administration attempted to overhaul the waiver program. It issued guidance, later embedded in regulation, which interpreted the statutory limits on waivers nearly out of existence and encouraged states to use the program to flout the ACA. Trump officials also forbid states from using waivers to implement public coverage programs or provider price reforms.

These policies almost certainly will be reversed. The Trump approach to waivers conflicts with both federal law and President Biden’s policy commitments. The question is not whether the new administration will restore the program to its original purpose, but when it will do so.

What Can States Do with a 1332?

Reinsurance Revisited

To date, states have used Section 1332 waivers almost exclusively to support individual market reinsurance programs. Although states have pursued waiver-funded reinsurance for multiple reasons, its primary appeal has been as a way to improve affordability for individual market consumers who aren’t eligible for federal premium tax credits. The programs do this by lowering the sticker price (i.e., unsubsidized premium) of individual market coverage, thereby subsidizing premiums for consumers who don’t otherwise qualify for a subsidy. They’ve done this job well: every state with a reinsurance waiver has experienced markedly lower unsubsidized premiums than it would have without one.

Yet if the premium affordability enhancements of the ARP were to become permanent, states would likely need to rethink their reinsurance programs. A limitation of reinsurance waivers is that they offer no direct benefit to consumers who receive federal subsidies. Federal premium tax credits insulate subsidized enrollees from changes — up or down — in the sticker price of coverage, meaning that reductions in unsubsidized premiums caused by waiver-funded reinsurance don’t translate into more affordable subsidized coverage. Because the ARP extends premium subsidy eligibility to all income levels, most of the people helped by reinsurance waivers previously (i.e., unsubsidized enrollees ineligible for premium tax credits because of income) will now get premium tax credits if they purchase marketplace coverage, and won’t benefit from the waivers. If the premium subsidy enhancements become permanent, reinsurance waivers would continue to lower premiums for two groups: people at high incomes who remain unsubsidized because their premium costs are less than 8.5 percent of income; and individuals ineligible for federal premium subsidies for reasons other than income, namely undocumented immigrants and people affected by the so-called family glitch. The first group has little need for affordability assistance. The second is very much in need, but states could aid them more efficiently with targeted premium assistance.

States from across the political spectrum have adopted waiver-funded reinsurance, and their programs are each a bit different. It’s possible some of these efforts might continue to offer substantial value in tandem with permanently enhanced federal subsidies. But for some states, there may be more attractive uses for a waiver.

Public Option Opportunities

In recent years, an increasing number of states have weighed whether to implement a public option in the individual market. Washington launched the first such program this year, a hybrid option in which the state contracts with private insurers to administer and sell a private plan. Public options hold promise for several reasons, including as a tool to constrain health care costs and, in turn, to lower individual market premiums.

Public options are hardly an easy lift, but Section 1332 waivers, newly available for public options, may empower states to move forward. While a state doesn’t need a waiver to implement a public option, securing one would enable it to capture any premium savings the program generates. Waivers could help states make headway on health care spending and enrollee affordability simultaneously, through a program that combines a cost-saving public option with polices designed to reduce cost sharing — the savings from the former helping to fund the latter.

Looking Forward

It remains to be seen whether the ARP’s premium subsidy enhancements will be extended, and so it’s prudent for states with waiver-funded reinsurance programs to maintain them. But policymakers in all states could begin weighing how a permanent boost to federal premium subsidies might allow them to address other affordability barriers. Some states may find it most straightforward to forgo a waiver and redirect state funding streams, including those previously used to support reinsurance, to provide cost-sharing assistance or a targeted premium subsidy for people who remain ineligible for federal help. Other states may consider the role waivers might play in jointly addressing health care costs and the continued burdens of high cost sharing.

Publication Details

Date

Contact

Justin Giovannelli, Associate Research Professor, Center on Health Insurance Reforms, Health Policy Institute, McCourt School of Public Policy, Georgetown University

[email protected]

Citation

Justin Giovannelli, “A Permanent Boost to Federal Premium Assistance Could Change State Approaches to ACA 1332 Waivers,” To the Point (blog), Commonwealth Fund, May 3, 2021. https://doi.org/10.26099/0tjs-5a19