New Approach to Affordable Care Act Waivers Causes Controversy

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The Trump Administration encourages states to use “innovation waivers” to find new ways to lower costs.

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Of the estimated 16 percent of Americans who remain without health insurance, many “face a stunning choice.” They can either find a way to pay the equivalent of a second rent payment each month for health coverage—or go without insurance and hope they do not get sick.

This “stunning choice” is the sort of dilemma the Patient Protection and Affordable Care Act (ACA) sought to address when it was passed in 2010. And although a federal judge in Texas recently ruled that the ACA is unconstitutional, the U.S. Department of Health and Human Services has stated that it will continue “administering and enforcing all aspects of the ACA as it had before.” The ACA—and the regulations implementing it—are applicable for the time being.

These regulations include recent measures that the Trump Administration took to allow greater flexibility for states to innovate and address local health care needs. The Administration believes that rolling back certain Obama-era ACA requirements will improve health insurance affordability. In recently issued guidance, federal health care agencies have modified the metrics that the federal government uses in evaluating states’ applications to obtain waivers of certain ACA provisions that would otherwise apply to state marketplaces.

Known as  “Section 1332 waivers,” these waivers were originally designed to allow states to individualize their marketplace regulations to meet local needs while maintaining the overarching protections provided by the federal ACA. In effect, the new guidance loosens the “guardrails” that states must satisfy to obtain a waiver, which were put in place during the Obama Administration. Although some applaud the increased flexibility that the guidance gives to states, others contend that it would be ineffective and that such a measure should not be undertaken through guidance—in which the opportunity for public comment is absent—particularly in light of Congress’s failure in 2017 to pass similar measures.

The ACA requires states seeking waivers to maintain certain policy benchmarks designed to maintain program integrity: They must provide the same level of coverage as would be provided without a waiver; provide coverage protections against excessive out-of-pocket spending that are at least as affordable; provide coverage to at least a comparable number of residents; and remain neutral to the federal deficit.

The recent guidance provides a new interpretation of the scope of these guardrails. When determining whether a state’s waiver application falls within the statutory guardrails, the agencies will now look at factors such as whether the program increases opportunities for affordable private market coverage, fosters state innovation, or promotes consumer-driven health care, rather than examining whether the program actually produces affordable coverage that maintains or improves the number of people with insurance.

Experts predict that the guidance document will result in some drastic changes to the operation of the ACA within the states. Perhaps the most important change will be that the agencies may grant waivers to states that seek to provide subsidized coverage to plans that do not comply with the ACA’s basic coverage requirements—such as Association Health Plans (AHPs) or short-term, limited duration insurance (STLDI). Such plans often do not cover people with preexisting conditions, one of the ACA’s most popular protections.

Proponents of the recent guidance at the free-market think tank Heartland Institute point to rising premiums on the private individual marketplaces set up by the ACA as a justification for loosening waiver requirements to allow parred down plans. Premiums on these exchanges have risen and are predicted to continue to rise. The Institute argues that AHPs and STLDI plans “are not merely a cheaper alternative to a ‘superior’ and vastly more expensive Obamacare plan.” Instead, it contends that these plans provide more choice to consumers.

Other proponents welcome the guidance measure’s focus on state autonomy. They argue that states facing shrinking private markets and increased premiums—such as Oklahoma, Iowa, and Ohio—previously have been powerless in finding state-level solutions because the Trump Administration would not approve their waiver applications under the existing framework. Proponents of the guidance contend that “now is the time for state governors, legislatures, and policymakers to answer Trump’s invitation and devise creative, responsible and workable solutions.” To aid the states, CMS announced that it will publish “waiver concepts” that will “spur conversations…and illustrate how states might take advantage of this new opportunity to move beyond the ACA.”

Opponents argue, however, that the guidance provides states with a back-door avenue for circumventing the ACA altogether, leading to disparate coverage depending on whether individuals live in a red or blue state.

Opponents also predict that allowing states to subsidize non-ACA compliant AHPs and STLDI plans could “draw healthy people away from the marketplaces, resulting in higher premiums for those remaining—a population that would presumably include many Americans with preexisting conditions.” This is amplified, some suggest, by the guidance’s repeal of a policy that waivers maintain coverage for vulnerable groups, like those living in poverty and the elderly.

Other critics argue that the agencies acted inappropriately when issuing this measure as a guidance document. Guidance documents interpret statutes and regulations and typically do not require consideration of the public’s comments.

Timothy Jost, a professor at Washington and Lee University School of Law, has decried the use of guidance to promulgate this measure. By issuing the guidance, he argues, “the Trump Administration is attempting to accomplish through administrative fiat changes in the ACA that Republicans repeatedly tried and failed to bring about through legislation in 2017.” He predicts that the guidance will “almost certainly” be subject to legal challenge based on the way in which the Trump Administration implemented it. “Once again,” Jost opines, “major health policy changes are being made by the administration, and ultimately by the courts, and not in Congress where they would seem to belong under our constitutional system.”

Although the guidance was issued on October 22, 2018, its proposed changes would not take effect until 2020.