States Gain Greater Flexibility Under New ACA Waiver Guidance

An updated CMS document gives governors greater power to authorize innovation waivers under the ACA, and it loosens the definition of 'coverage' to include association health plans and short-term options.

The way the Centers for Medicare & Medicaid Services evaluates and approves state innovation waivers under the Affordable Care Act will change dramatically under a revised guidance document released Monday.

The changes, which override 2015 guidance by the Obama administration, are designed to give states greater flexibility in pursuing so-called Section 1332 waivers. These waivers have been used several times this year to authorize state-run reinsurance programs, but the Trump administration said its new direction will restore flexibility for the states as originally intended by the law.

Related: New ACA Waivers Could Subsidize Short-Term Coverage

"States know much better than the federal government how their markets work," CMS Administrator Seema Verma said in a statement. "With today's announcement, we are making sure that they have the ability to adopt innovative strategies to reduce costs for Americans, while providing higher quality options."

More authority for governors: Although the ACA requires states to enact a law to authorize the implementation of a Section 1332 waiver, the added flexibility under the new guidance will empower governors to authorize waivers in certain circumstances. If there's an existing state law authorizing the enforcement of ACA provisions and the state waiver plan, then adding a state regulation or executive order may satisfy the requirement going forward, according to a CMS fact sheet.

Looser definition of coverage: Although the new guidance continues to require states to ensure that their waivers do not significantly reduce the number of people who have coverage, it also expands the definition of "coverage" to include association health plans and short-term limited-duration options.

A nod to preexisting condition protection: The press release CMS published Monday mentions preexisting conditions three times. In each case, it emphasizes that states will have the discretion to protect consumers with preexisting conditions:

• "Under this new policy, states will be able to pursue waivers to … ensure that people with pre-existing conditions are protected."
   
• "The new flexibilities available to states include [allowing] … states to provide consumers with plan options that best meet their needs, while, at the same time, ensuring people, including those with pre-existing conditions, retain access to the same level of coverage available today without the waiver."
   
• "The Departments [of Health and Human Services, Labor, and the Treasury] are committed to empowering states to innovate in ways that will best protect people with pre-existing conditions, strengthen their health insurance markets, expand affordable choices of coverage, target public resources to those most in need, and meet the unique circumstances of each state."

This comes as Republicans campaigning for next month's midterm elections have been touting protections for those with preexisting conditions—a popular provision of the ACA—despite pushing for years to repeal the law.

"To be clear, nothing in this new guidance reduces protections for people with pre-existing conditions," Verma added in a blog post. "This Administration remains firmly committed to maintaining protections for all Americans with pre-existing conditions."

What Verma doesn't mention is that this administration has asked a federal judge to block the ACA's preexisting condition protections as having been rendered unconstitutional by the tax reform package President Donald Trump himself signed into law late last year. A spokesperson for CMS did not respond to follow-up questions from HealthLeaders.

Senate health committee Chairman Lamar Alexander, R-Tennessee, praised HHS for the revised guidance.

"In four bipartisan health committee hearings I chaired last fall, virtually every witness told our committee that waiver application is too cumbersome, inflexible, and expensive for states to use," Alexander said. "I tried to fix this problem in Congress, but Democrats have elevated Obamacare to the 67th book of the bible and refused in March to fix even a word of the law's waiver provision."

"I will continue working in Congress to help undo the damage Obamacare has done while protecting patients with pre-existing conditions," he added.

Matthew Fiedler, PhD, a fellow with the Brookings Institution Center for Health Policy who served as chief economist of the Council of Economic Advisers during the Obama administration, described the policy change as resembling the long-stalled effort to repeal and replace the ACA legislatively.

"The combination of the changes to the coverage, comprehensiveness, and affordability guardrails will open the door to many new types of waivers, including waivers that shift costs from healthier people to sicker people and from higher income people to lower income people. That would allow states to implement approaches to the individual market similar to what Congress contemplated during last year's ACA repeal debate," Fiedler told HealthLeaders in an email.

States could essentially do away with the existing market for ACA-compliant plans by switching from the current premium tax credit to an alternative that may be used to buy short-term plans, Fiedler added.

"Healthy people, including healthy people who currently stay in the ACA-compliant market to access subsidies, would gravitate toward short-term plans. That would drive premiums for ACA-compliant plans higher until only the very sickest people wanted to buy coverage, likely causing the ACA-compliant market to collapse outright," he said. "If the ACA-compliant market did collapse, that would sharply increase costs for people with greater health care needs."

States could take steps to mitigate the negative effects experienced by populations with greater healthcare needs, and the federal government could require states to take these mitigating steps; but it remains unclear whether this would happen, especially since covering these higher costs would likely require some state funding as well, Fiedler said.

The full language of the guidance itself, which will be published Wednesday in the Federal Register, is available online.

More information on the Section 1332 waiver process is available on the CMS website.

Editor's note: An earlier version of this story included a link to a tweet by Matthew Fiedler. The reference to his tweet was removed and replaced by a more-thorough explanation Fiedler provided via email.