State Waivers for ACA Insurance Provisions Available

by Pamela Haughton-Denniston, Esq.

In a final rule published Feb. 27 by two Cabinet departments — Health & Human Services (HHS) and Treasury — the Obama administration has spelled out how states may devise their own financing and insurance coverage plans for individuals and small employers. Without compromising the basic goals of the Affordable Care Act (ACA), and assuming the law survives constitutional challenges pending in the U.S. Supreme Court, states may obtain waivers of all or any part of regulations controlling four major insurance provisions under the new 2010 health-care law (Section 1332):

1) The requirement to establish “qualified health plans.” These must provide, among other things, coverage for a minimum “essential health benefits” package (including drugs, preventive care and chronic-disease management); must not exceed specified limits on co-pays, deductibles and co-insurance; must ensure a sufficient choice of providers within their networks, including those that serve predominantly low-income, medically underserved individuals or populations; and must meet quality standards of clinical care, and be committed to improving the quality of care provided. (Section 1301)

2) The creation of government or non-profit Health Benefit Exchanges. The exchanges facilitate the purchase of affordable coverage from qualified health plans by individuals and small employers. Under the ACA, states must set up a Web site containing comparable cost, coverage, quality and enrollment information. Federal grants are available to assist states in setting up the exchanges, but states are responsible for maintaining the Web sites, all relevant data, assisting users, and administering federal and state regulations governing the exchanges. The premiums charged through the exchange may not exceed those charged for the same benefit package offered directly to individuals or through brokers. (Section 1311)

3) Reduced cost-sharing for low-income individuals and families enrolled in qualified health plans. The ACA provides for a graduated reduction in co-pays and deductibles for individuals and families with incomes up to 400 percent of the federal poverty line. Under the law, cost-sharing is reduced by as much as two-thirds for an individual or family living at 100 percent to 200 percent of the poverty line; by half for individuals living at 200 percent to 300 percent of the poverty line; and one-third for those living at 300 percent to 400 percent of the poverty line. Further reductions may be available. These reductions apply only to essential benefits and not to coverage of additional benefits offered by the plan. The federal government reimburses the plan for co-pays and deductibles not paid by exempt, low-income individuals. (Section 1402)

4) IRS regulations about refundable tax credits for premiums, shared responsibility for employers, and penalties for failure to maintain minimum essential coverage. These complex rules apply to large employers, as well as individuals and small employers offering coverage through the health exchanges. While many exceptions and conditions apply, essentially, large employers who fail to offer adequate benefit plans or to share costs for minimum essential coverage may have to pay a tax penalty.

The amount of penalty is based on how many employees the company has and the costs incurred by the federal government in tax credits and in direct payments to qualified health plans for cost-sharing reductions for employees purchasing coverage through an exchange. Small employers may be eligible for tax credits if they cover a portion of the premium costs for employees. For non-exempt individuals, the penalty for failure to obtain insurance is based on the lowest level of coverage available through an exchange. (Sections 36B, 4980H, and 5000A of the IRS Code)

In order to get a pass from these specific requirements, a state must be able to demonstrate that its alternative plan will provide coverage at least as comprehensive as that provided under the ACA, that it will be as affordable as the ACA approach, that the number of people covered will not be reduced, and that its plan will not add to the federal deficit. If its plan is approved, a state will be entitled to receive directly from the federal government any funds that otherwise would have been paid out in tax credits to individuals and employers and in payments to qualified health plans to make up for reductions in cost-sharing to eligible individuals.

The rule lays out in detail the contents of a waiver application, including:

    • Procedures for public notice and input into the waiver application
    • A list of provisions of the ACA that the state is asking to be waived and reasons for seeking the waiver
    • State laws authorizing the alternative plan
    • Actuarial certifications, economic, demographic and other data and assumptions sufficient to show that its proposal meets the basic goals of the ACA for coverage, affordability, scope and impact on the federal deficit
    • An implementation timeline
    • A 10-year budget
    • An assessment of administrative burdens on plans, employers and individuals

    • An assessment of the impact of the waiver on federal agencies and on implementation of provisions of the ACA not affected by the waiver

HHS says it is prepared to work closely with the states to ensure their applications are complete. Once a waiver has been granted, a state is required to monitor performance under its plan, provide for public input into assessments, and report quarterly and annually on its progress and compliance with the requirements of the waiver.

So far (in early March), it appears that only two states are entertaining waiver applications. The Huffington Post reports that Sen. Ron Wyden, Democrat of Oregon, is encouraging his state to request a waiver to eliminate the individual mandate and penalty, and Oregon’s director-designee is reportedly interested in moving to implement Health Benefit Exchanges more rapidly than called for by the ACA.

In addition, Rep. Peter Welch, Democrat of Vermont, reports that his state has plans to convert its Health Benefit Exchange mechanism to a single-payer system when Section 1332 waivers become effective. Sen. Wyden and Rep. Welch are sponsors of bills in the Senate and House that would allow waivers to take effect in 2014 (when exchanges must be in place), rather than 2017 as now called for by the ACA. HHS is on record supporting the legislation.

State Waivers for Medicaid and CHIP Demonstration Programs.

On the same day HHS published rules for waiving ACA insurance market reform measures, the agency also published new rules for states hoping to extend existing or win new waivers for pilot, experimental, and demonstration programs that provide health services under Medicaid and the Children’s Health Insurance Program (CHIP).

The original rules for Medicaid demonstration program waivers were issued in 1994, under Section 1115 of Title XIX of the Social Security Act. Since then, 2002 and 2007 GAO reports faulted HHS for failure to comply with its own public notice and consultation procedures. The new rules aim at transparency and public input in the review and approval of Section 1115 waivers. The rules include rigorous reporting and evaluation requirements, to assess the effectiveness of the various models in meeting the goals of Medicaid and CHIP – cost-effective delivery of quality health services to especially vulnerable populations.