Last week, the Trump administration issued long-anticipated guidance regarding the Affordable Care Act’s Section 1332 “innovation waiver” program. The release rebrands and creatively reimagines the ACA program (they’re now “State Relief and Empowerment” waivers), breaking dramatically with past policy and, arguably, with the statute it purports to interpret. In the administration’s view, the ACA permits states to funnel federal dollars towards insurance products, such as short-term plans, which do not meet the ACA’s key consumer protections, while reducing support for consumers who depend on coverage compliant with the ACA’s rules. Further, the new guidance assures states that they may push forward with such policies even if they will have a detrimental effect on people with preexisting conditions, those at lower incomes, or older Americans.

Section 1332 waivers in brief

The ACA’s Section 1332 waiver program gives states the option to waive key provisions of the federal health law in service of state-specific strategies to improve coverage. Waiver programs must adhere to the overarching goals and objectives of the ACA itself: waivers likely to undermine comprehensive, affordable coverage, cover fewer people, or impose additional costs on the federal government, are prohibited by statute. Importantly, the program makes available federal dollars to support innovation: if a state waiver program is forecast to reduce federal spending on coverage subsidies, the state is entitled to have these savings passed through to it for purposes of implementing its waiver. Since the program came online in 2017, the federal government has approved eight waivers, seven of which provide funding for reinsurance programs that have lowered premiums for comprehensive individual market coverage.

What does the guidance say?

The administration’s pronouncement wholly supersedes earlier guidance from 2015 and advances a radically different interpretation of the purpose and limitations of the ACA waiver program that is seemingly at odds with both the intent and letter of the law. The guidance:

• Announces five principles that will guide federal regulators when determining whether to approve a state’s waiver plan. These principles favor proposals that:
  • Prioritize private coverage over public coverage;
  • Eliminate or reduce state regulations that may limit market choice or competition;
  • Support needy residents with financial assistance for private coverage; and
  • Avoid a one-size-fits-all approach to coverage.
• Asserts a novel understanding of the waiver program’s limitations that looks to convert the statutory “guardrails”—the federal law provisions that bar states from designing waivers that jeopardize the affordability or adequacy of residents’ coverage, reduce the number of people with insurance, or increase the federal deficit—into speed bumps. For example:
  • Federal approval of a waiver will depend chiefly on its aggregate effects. While considering a waiver’s big picture impacts is neither new nor troubling, the apparent overriding weight given to this approach is: in sharp contrast to prior policy, federal officials will no longer require states to design waiver programs that hold vulnerable populations harmless. Waivers that make certain populations worse off may be approved if more people are projected to benefit, or if a state’s application successfully argues that the magnitude of the waiver’s benefits is likely to be greater than its harms.
  • A waiver will pass muster under the affordability and comprehensiveness guardrails so long as it leaves residents with access to coverage that is both affordable and adequate, as those terms are now more loosely defined, regardless of what coverage (if any) they actually enroll in.
  • The guidance reinterprets the coverage guardrail—which requires that a comparable number of people have coverage under the waiver as would have coverage without it—nearly out of existence, permitting states to satisfy the requirement by counting people enrolled in insurance products that can deny coverage based on health status and that don’t otherwise comply with any of the ACA’s consumer protections.
• Offers states more flexibility to customize or, indeed, entirely do away with their ACA marketplaces.
• Makes it easier for state officials to submit a waiver application without going to their legislature for authorization—an obligation to obtain buy-in for potentially major reorganizations of a state’s insurance markets that the guidance casually excuses, notwithstanding that it’s required by the federal statute.

These are the highlights. An excellent summary of the entire guidance is here.

What are the implications…

…For residents with preexisting conditions?

The 2015 guidance read the ACA to prohibit waivers likely to harm a state’s vulnerable residents. The new guidance rejects that view, on the theory that maintaining such protections for vulnerable groups, including those with serious medical conditions, is too burdensome for states. By its terms, the administration’s policy permits states to take federal dollars that help vulnerable populations afford comprehensive coverage, and use those funds to spur enrollment in insurance products that don’t protect people with preexisting conditions. To put a finer point on it, the guidance suggests a state could adopt such a program even if it were likely to make coverage worse for people with serious health conditions, worse for older residents, worse for those at lower incomes—or even if it were to cause these individuals to lose insurance entirely.

This approach fits neatly with other recent administration policies designed to promote the sale of insurance products that don’t play by the same rules as comprehensive ACA coverage. Indeed, the new policy seems designed to encourage states to cultivate a parallel market for such products in which federal consumer protections—including safeguards for those with preexisting conditions—simply don’t apply.

This is a key point. Though the guidance doesn’t purport to modify directly the list of ACA provisions that can’t be waived—these non-waivable provisions include the core protections for people with preexisting conditions—its strained reading of the guardrails appears to invite states to implement policies that undermine and circumvent those protections.

…For shoppers on the ACA marketplaces?

The new guidance will have no effect on consumers as they shop for coverage during the upcoming open enrollment period. The future, however, may be quite different. The announcement that the federal government can now support more customization of the enrollment experience for states that use Healthcare.gov could be good news for consumers. States, might, for example, take greater operational control to provide residents better tools to support decision-making, better target outreach efforts, or improve access to in-person assistance. States that currently run their own marketplace websites have innovated in interesting ways to the benefit of their residents, and more states could do likewise.

However, in the light of the guidance’s prioritization of short-term and other skimpy coverage, this offer of increased operational flexibility may portend other changes to the marketplaces less likely to improve consumers’ experiences. States may seek permission to stand up an alternative marketplace for skimpy coverage, or to offer a combined portal in which coverage compliant with ACA protections is sold side-by-side with products that are not. In such circumstances, decision support tools will be even more critical to reduce confusion and help consumers understand what their coverage options do, and do not, provide.

…For waiver proposals that would leverage public coverage?

It’s still early days for state reforms that would provide broader swaths of residents the option of enrolling in public coverage—for example, a Medicaid buy-in program—and these plans do not necessarily require a Section 1332 waiver to implement. To the extent such a reform program were to require a waiver, however, the guidance’s clear preference for waivers that don’t involve public coverage signals a difficult road.

…For reinsurance waivers?

Encouragingly, the guidance does not appear to undermine the viability of waivers to support a state-run reinsurance program. These waivers, which enjoy bipartisan support, should remain an attractive policy tool capable of lowering premiums in a state’s individual market, to the particular benefit of residents who aren’t currently subsidized (or who receive a relatively small subsidy) under the current framework.

…For states looking to implement a waiver quickly?

The ACA requires that a state “enact a law . . . that provides for State actions under a waiver under [Section 1332], including the [waiver’s] implementation,” before a waiver can be approved. A bipartisan group of senators sought to amend the ACA to eliminate this requirement (this was part of the Alexander-Murray bill), but that effort failed. Nevertheless, the administration appears to have been persuaded that this obligation was holding states back. In a win for state executive branch policymakers, at least, the guidance asserts, without support, that a general statute relating to ACA enforcement, coupled with more specific executive action, will suffice to move a waiver forward.

Yet whether or not the legislature must weigh in, Section 1332 waiver applications remain a lift, requiring substantial commitment of state resources. Although the guidance took effect immediately, it may take some time for states to develop and prepare to implement a waiver that takes advantage of the new policy. This may be especially true for the more radical waiver ideas ostensibly blessed by the guidance, which should entail complex study and are likely to bring considerable changes to a state’s insurance markets. (Then again, CMS has promised to release waiver templates that may speed this process.)

Should states choose to push the envelope, it seems likely the waiver process will be further complicated by litigation. The guidance—of a sort this administration’s Justice Department has said it disfavors—raises almost as many legal questions as it does policy ones. For instance:

Is a waiver that reduces the number of people with comprehensive ACA coverage in order to boost enrollment in products that refuse coverage to people with preexisting conditions consistent with the ACA?

May states cobble together a benefit package, not actually available for purchase anywhere in the market, and use this creation as the guidance suggests: in effect, for accounting purposes, to meet the requirement that waiver coverage be as comprehensive as the coverage defined in federal law “and offered through” the ACA marketplaces?

Has a state met the requirement to “enact a law . . . that provides for State actions under a waiver under [Section 1332], including the implementation of the State[’]s [waiver] plan” if the state statute provides only general authority to enforce the ACA?

These questions, and a great many other details facing states, are significant, and may separate not just good policy from bad, but a waiver that is legal from one that is not.

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In recent weeks, the administration has said it shares the goal of protecting the many millions of Americans who have a preexisting condition. This new guidance is another in a long line of concrete actions taken by that administration that do just the opposite.