A provision of the Affordable Care Act allows states, beginning in January 2017, to ask the federal government to waive almost every major coverage requirement of the ACA, including benefit package stipulations and the individual and employer mandates. Many in the employer community and the benefit industry hoping to be relieved from the ACA’s Employer Shared Responsibility Rule may consider state waivers the elixir they’ve been waiting for, but are they?
While the ACA itself still permits a state to apply for a State Innovation Waiver requesting the employer mandate rule or other cumbersome coverage requirements be waived, recent guidance makes it clear those requests will be hard to win.
Section 1332 of the ACA permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA.
According to final guidance released in December from the Treasury Department and the Department of Health and Human Services, state proposals must meet four specific requirements, including:
1) The proposal will provide coverage to at least a comparable number of the state's residents as would be provided absent the waiver;
2) The proposal will provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable for the state's residents as would be provided absent the waiver;
3) The proposal will provide coverage that is at least as comprehensive for the state's residents as would be provided absent the waiver; and,
4) The proposal will not increase the federal deficit.
States requesting the waivers need to submit a lengthy application to demonstrate why they’re requesting a waiver from ACA provisions, according to Gretchen Harders, a member of Epstein Becker Green’s employee benefits practice in its New York office.
The application process, she says, includes a detailed 10-year budget plan to show it is deficit neutral. It also requires a timeline, a full analysis and legal authority, and states are also required to hold public hearings on the proposal.
In the final guidance, HHS clearly says it would deny any proposals that would result in loss of coverage, especially to the most vulnerable populations such as low-income and elderly individuals, those with serious health issues or those susceptible to developing serious health issues.
“Reducing coverage for these types of vulnerable groups would cause a waiver application to fail [the coverage] requirement, even if the waiver would provide coverage to a comparable number of residents overall,” the rule says.
“You can’t use this program to jettison the population with the greatest health costs,” Harders says.
The language for the waivers was written by Sen. Ron Wyden (D-Ore.), who aimed to let states keep ACA funds while creating a more customized approach to coverage for their residents.
“When I authored this provision, the intent was clear: Allow states to innovate while still achieving the objectives of the Affordable Care Act — to bring high-quality, affordable healthcare to millions of Americans who previously did not have access,” Wyden said after the guidance was released in December.
Almost specifically addressing states that might seek to undo the individual or employer mandate, the final rule published in December also says, “Certain changes that affect Internal Revenue Service (IRS) administrative processes may make a waiver proposal not feasible to implement. At this time, the IRS is not generally able to administer different sets of rules in different states. As a result, while a state may propose to entirely waive the application of one or more of the tax provisions listed in Section 1332 to taxpayers in the state, it is generally not feasible to design a waiver that would require the IRS to administer an alteration to these provisions for taxpayers in the state.”
The individual mandate and employer shared responsibility rule are provisions of the Internal Revenue Code administered by the IRS.
States considering waivers
Harders says several states are in the process of creating a proposal for State Innovation Waivers, including Arkansas, which is looking at allowing some private insurance companies into its Medicaid market to make it more competitive.
In Hawaii, a longstanding and popular employer mandate, the Prepaid Health Care Act, has led to a high coverage rate (92%) among state residents, according to The Commonwealth Fund and The Robert Wood Johnson Foundation. Efforts to reconcile the Prepaid Health Care Act and ACA provisions have created challenges for Hawaii and motivated the legislature to establish a task force focused on 1332 waiver possibilities, the foundations say.
California currently has a bill being considered that calls for a 1332 waiver application to be submitted to requesting an exemption to the ACA’s express exclusion of undocumented immigrants from the exchanges.
State Innovation Waivers are available beginning Jan. 1, 2017. State Innovation Waivers are approved for five-year periods, and can be renewed.
