Latest On Section 1332 Waivers: New Approvals, Impact Of Reinsurance, And More

Federal and state officials continue to consider and advance Section 1332 waiver proposals under the Affordable Care Act (ACA). Under Section 1332, federal officials can waive certain ACA requirements if a state demonstrates that their waiver proposal meets statutory “guardrails.” How to interpret these guardrails has been a point of recent debate, but most approved waivers have been for noncontroversial state-based reinsurance programs. This post summarizes recent developments on Section 1332 waivers, including federal approval to extend Colorado’s waiver, pending waiver-related requests in other states, a new data brief on state-based reinsurance programs, and 2020 user fee data.

In the meantime, the Centers for Medicare and Medicaid Services (CMS) and the Treasury Department have proposed, but have not yet finalized, changes to current Section 1332 regulations. The proposed rule reflects the Biden administration’s new priorities for Section 1332 waivers and would rescind and replace the Trump administration’s interpretation of the statutory guardrails.

Colorado’s Waiver Extension Approved

On August 13, 2021, CMS and Treasury approved Colorado’s request for a five-year extension of the state’s current Section 1332 waiver for a reinsurance program (fact sheet here). Colorado’s initial reinsurance program was authorized in 2019 for only 2020 and 2021. With the waiver extension in place, Colorado’s program can continue through 2026.

As outlined in its application, Colorado did not propose changes to its current program except for the extension of time. Colorado did consult with an actuarial firm to assess the effects of the American Rescue Plan Act and reinsurance on its market and weighed alternatives in light of enhanced subsidies under the new law (such as using the reinsurance program to reduce premiums less or only applying reinsurance to certain metal tiers). But neither approach reduced premiums as much as the current program, so Colorado opted against changes.

Colorado (like most states) established a traditional, claims-based attachment point reinsurance program. In one unique feature that has now been replicated in other states, Colorado uses a geographic tiering approach to reduce premiums in high-cost areas of the state. In the Denver Metro area, for instance, insurers will have 43 percent of their claims costs reimbursed when the claim is between $30,000 and $400,000. In contrast, in the two areas of the state with the highest health care costs, insurers will have 73 percent of these claims reimbursed. The insurance commissioner can continue to adjust the payment parameters in new rules each year.

Colorado’s program was initially funded by assessment fees on hospitals, health insurance tax premium revenue, and state general revenue funds. But these funding sources are being replaced by a new Health Insurance Affordability Enterprise; the Enterprise was established in 2020 and is a state-level replacement of the ACA’s now-repealed federal health insurance tax.

For 2022, Colorado’s program is expected to reduce statewide premiums by 19.2 percent and increase individual market enrollment by 2.5 percent (relative to premiums and enrollment without the waiver). Federal officials also posted two comments (both supportive) received on Colorado’s waiver extension request and responses to these comments. Colorado will make some changes for 2022, such as requiring all insurers to use federal induced demand factors. This was recommended by the Colorado Health Institute and an actuarial consulting firm in an analysis of the impact of reinsurance on subsidy-eligible consumers.

From here, Colorado must comply with the specific terms and conditions (STCs) outlined in the new waiver approval agreement. The new STCs are similar to those included in Colorado’s initial approval, with only a handful of notable exceptions. First, the new STCs more explicitly discuss how waivers might be affected if there is a change to federal law. Second, the STCs include a new provision that lays out detailed procedures for how Colorado should ask to amend the waiver approval. Third, the STCs include additional detail regarding how to request a future waiver extension. Many of these provisions are included in newer state STCs, and CMS and Treasury proposed adopting regulations on waiver extension and amendment procedures in the not-yet-finalized rule noted above.

New Developments Related To Other State Waivers

More Extension Approvals On The Horizon

To my knowledge, Colorado is the first state to be approved for a waiver extension, but additional extension approvals may be coming. Section 1332(e) expressly allows states to request a continuation of an approved waiver; such requests are deemed granted unless the Secretary denies the request within 90 days. In addition, STCs require the state to notify the federal government of its intent to apply for a continuation of the waiver at least one year prior to the waiver’s end date.

Alaska, Hawaii, Maine, Oregon, and Wisconsin each submitted letters signaling their intent to apply for five-year waiver extensions or amendments. Except for Maine (whose request is discussed here), these states ask for a simple extension and would make no changes relative to their existing programs. (Like Colorado, Oregon notes that it is contracting with an actuarial firm to study the effects of reinsurance on the subsidy-eligible population with the goal of developing policies that mitigate any negative effects of reinsurance on lower-income consumers.) With the exception of Maine (which will be treated as a waiver amendment request), federal officials will allow the states to proceed with extension applications. Each state’s letter outlines specific application requirements (including the data that must be submitted and an opportunity for public input) and timelines for consideration.

Minnesota continues to await a response to its February 2021 letter asking federal officials to revisit its reinsurance waiver. Minnesota faces unique circumstances because it is one of only two states with a Basic Health Program (BHP). In 2017, the Trump administration approved Minnesota’s reinsurance waiver but authorized the state to receive only the amount saved through reduced subsidies rather than the full amount saved by the federal government through reduced premiums for standard plans under the BHP. State officials previously asked the federal government to reconsider and pass-through the amount of the reduction in BHP payments, an estimated $359 million more between 2018 and 2022.

The Trump administration’s decision, state officials note in the February 2021 letter, “resulted in reduced federal funding for our BHP without compensating with increased funding via 1332 passthrough,” and they ask CMS and Treasury to correct this calculation going forward. CMS responded in June 2021 to note only that federal officials are reviewing the request and will propose “potential approaches” to address the intersection of these two programs in a future BHP rulemaking.

Latest On Georgia’s Section 1332 Waiver

There have been several new developments since we last visited approval of Georgia’s Section 1332 waiver. Regular readers know that Georgia is the only state to have been approved for a broad Section 1332 waiver to restructure its individual market. The waiver includes two phases: a state-based reinsurance program beginning in 2022 and elimination of HealthCare.gov (without transitioning to a state-based marketplace) beginning in 2023. This second phase of the waiver is known as the Georgia Access Model and would make Georgia the only state without a single one-stop-shop marketplace for consumers in need of private health insurance. Instead of a single marketplace such as HealthCare.gov, consumers would transition to a decentralized enrollment system that uses web-brokers and insurers.

Approval of Georgia’s waiver was controversial. Some argued that Georgia’s proposal fails to meet Section 1332’s guardrails and thus should not have been approved. Commenters almost uniformly opposed the waiver and raised concerns about the potential for coverage losses, the steering of consumers to non-ACA plans, and consumer confusion during and after the transition away from HealthCare.gov. The Georgia Access Model was approved under the Trump administration’s interpretation of Section 1332’s guardrails which, as noted above, the Biden administration has proposed to rescind and revise.

Georgia’s waiver approval was also challenged in court as contrary to Section 1332, outside the scope of the agencies’ authority, procedurally invalid, and arbitrary and capricious. The plaintiffs did not sue Georgia, but Georgia was allowed to intervene to defend the waiver approval. The litigation was put on hold on June 14 when the court agreed to a stay through at least September 13. The stay was requested in light of ongoing discussions between federal and state officials.

Those public discussions began on June 3 when CMS, on behalf of itself and Treasury, asked Georgia to submit updated actuarial and economic analyses of the baseline for the Georgia Access Model. CMS wanted an updated analysis in 30 days that reflects changes under the American Rescue Plan Act and the broad COVID-19 special enrollment period. Federal officials would then post that updated analysis for a 30-day public comment period. After that, CMS and the Treasury would further evaluate whether the Georgia Access Model meets Section 1332’s guardrails.

On the eve of the July 3 deadline, Georgia took issue with CMS’s request. State officials raised concerns that CMS wanted to “reopen” the waiver approval process and that they (and other third parties) have been acting in reliance on the waiver for the past eight months. Georgia also questioned whether reconsideration of waiver approval would be consistent with the approval’s STCs and asked for “further clarification” of CMS’s request for additional analyses.

First, the STCs in Georgia’s approved waiver—and long-standing federal guidance on this issue—explicitly preserve CMS and Treasury’s right to amend, suspend, or terminate the waiver (in whole or in part) if the agencies determine that Georgia “materially failed to comply with these STCs, or if the state fails to meet” Section 1332’s statutory guardrails. The STCs also lay out a process by which CMS and Treasury can exercise this authority, including a requirement that the agencies promptly notify the state in writing of this determination and reasons for the amendment, suspension, or termination. Georgia’s waiver approval also includes an unusual STC on state recourse if federal officials breach the STCs. In this case, the STCs purport to allow Georgia to sue for damages if the federal government suspends, modifies, or terminates Georgia’s waiver (except as authorized under the other STCs).

Second—aside from the more dramatic step of suspending or terminating the waiver—the STCs require Georgia to comply with reporting requirements. This includes providing “data sufficient to show compliance” with Section 1332’s statutory guardrails and “other information the Departments determine is necessary … to evaluate the waiver.” While Georgia might want to argue that approved waivers should never be reconsidered, Section 1332 allows federal funds to flow to states. As such, the federal government has a responsibility to ensure that federal funds are used in a manner consistent with federal law. The STCs also explicitly contemplate the potential for changes to federal law, such as the American Rescue Plan Act. All to say that federal officials can revisit approved waivers and ask for additional data (for any state) to assess ongoing compliance with federal law.

Federal officials suggested as much in a response on July 30. CMS notes that Georgia’s letter “incorrectly characterizes” the suggestion that federal officials are trying to reopen the waiver approval or did not follow the STCs. Rather, federal officials are acting pursuant to the STCs by requesting additional information as part of continued monitoring and oversight. Given changes like the American Rescue Plan Act, federal officials are reviewing all Section 1332 waivers for compliance with the guardrails and need a revised analysis from Georgia to complete this assessment.

Even though Georgia missed the initial deadline, the agencies agreed to provide an additional 30 days to comply with the request. If Georgia does not provide updated analyses by August 29, Georgia may be considered in violation of the STCs. And federal officials may choose to review the Georgia Access Model without the benefit of additional information from state officials. Once this review is completed, CMS may initiate proceedings to amend, suspend, or terminate the second phase of the waiver.

New CMS Data Brief On Reinsurance Waivers

On August 5, CMS issued a new data brief on the effect of the 14 state-based reinsurance programs that were in effect for 2021. This resource identifies the funding source for each state, program parameters, the impact on premiums by state and year, insurer participation, plan choice by metal level, and recent enrollment. Overall, the data shows that reinsurance programs lowered premiums and likely contributed to increased insurer participation and enrollment. The average premium reduction for 2021 across all states was 14.1 percent.

The latest report does not reflect the enhanced subsidies made available under the American Rescue Plan Act, although CMS and Treasury have confirmed that states will receive higher pass-through funding for 2021 and 2022 because of the new law. The 2021 data brief builds on a similar resource issued in 2020 that summarizes the effects of Section 1332 waivers in what was then 12 states.

User Fee Data For 2020

Also on August 5, CMS separately posted user fee data for 2020 for the 32 states that used the federal marketplace and the 6 states that employed a state-based marketplace using the federal platform. The user fee for 2020 was 3 percent of total monthly premiums for states with the federal marketplace and 2.5 percent of total monthly premiums for states with a state-based marketplace that uses the federal platform. User fees were highest in Florida, totaling more than $375 million, followed by Texas at $192 million and North Carolina at $107 million.

User fees for 2020 ($1.56 billion) were down from 2019 ($1.81 billion). This is both because CMS began decreasing user fee levels beginning with the 2020 plan year and because some states transitioned to their own state-based marketplace (Nevada) or state-based marketplaces that use the federal platform (New Jersey and Pennsylvania).

More user fee changes are coming. CMS maintained the 2020 user fee levels for the 2021 plan year but finalized additional user fee decreases for the 2022 plan year (to 2.25 percent and 1.75 percent of monthly premiums). The Biden administration recently proposed to partially reverse these user fee declines. The 2022 user fees are now expected to be 2.75 and 2.25 percent of monthly premiums, resulting in an increase of about $200 million in user fees for 2022. Even with this increase, the proposed user fee for 2022 would remain lower than 2020 and 2021, when it was 3.0 percent and 2.5 percent.