Understanding the Issues: Section 1332 State Innovation Waivers
Passed by Congress in 2010, the Affordable Care Act (ACA) increased federal regulation of the health care industry with the stated goal of reducing health care costs and decreasing the number of Americans not covered by health insurance.
Beginning in 2017, a provision of the law known as Section 1332 began allowing states to apply for federal permission to modify specific parts of the law in a manner more appropriate for their state. Similar to Section 1115 Waivers which allow states to apply for flexibility under state Medicaid programs, Section 1332 waivers are designed to allow states flexibility to implement experimental projects which provide low-cost, high-quality health care in a more efficient or effective manner.
The Trump Administration has recently announced changes to the Section 1332 waiver process in order to grant states even more flexibility and encourage states to create innovate programs under the law.
Requirements of 1332 Waivers
In order for a waiver to be approved by the federal government, the state requesting the waiver must prove the following:
- The innovation plan will provide coverage that is at least as comprehensive in covered benefits as required under the ACA
- Coverage provided under the innovation plan will be at least as affordable as coverage provided under the ACA
- After the implementation of the innovation plan, at least a comparable number of the state’s residents will be covered by health insurance as would be under the ACA
- Over the life of the innovation plan, the cost will be deficit neutral for the federal government.
Waivers are approved for five-year periods and may be renewed if proven effective.
Emphasis from the Trump Administration
In an effort to encourage more states to develop state-specific plans to improve health coverage and decrease costs, the Trump Administration has taken several steps to streamline the process of applying for Section 1332 waivers.
First, the Trump Administration has eased some of the criteria that states are required to meet in order to be approved for a waiver. Additionally, the federal government will also no longer require state legislatures to approve waiver plans before they are submitted for review by the U.S. Department of Health and Human Services and the U.S. Department of the Treasury. Instead, governors or approved state agency heads may submit waiver petitions. These changes will allow states more flexibility to experiment with new policies and programs, and will ease the process of applying for waivers and decrease the turnaround time between policy proposal and implementation.
1332 Waivers in Other States
Eight states have approved Section 1332 waivers, and an additional six states have submitted Section 1332 waiver applications that were later either withdrawn or denied. Most states have utilized Section 1332 waivers in order to establish reinsurance programs within their states, but each state’s reinsurance program looks slightly different.
Section 1332 Waiver History in Oklahoma
In 2017, Oklahoma experienced average premium increases of 75% on individual ACA Marketplace plans and only saw 31% of eligible Oklahomans receiving coverage through the ACA health insurance marketplace. To address these concerns, the Oklahoma Secretary of Health and Human Services and a Gubernatorial Task Force on Section 1332 waivers released a report in 2017 detailing an expansive plan that Oklahoma could pursue to reduce health care costs and increase the number of insured Oklahomans.
The Task Force recommended a number of options for policy innovation, including simplifying the consumer experience by eliminating the “metal tiers” of plans on the ACA health insurance marketplace, integrating the federal ACA health insurance marketplace with the Insure Oklahoma program already under state control, and establishing modified health savings accounts for enrollees.
Another recommendation called for federal funding to develop a state reinsurance program for plans offered on Oklahoma’s health insurance marketplace. Reinsurance is designed to protect health insurance providers from unexpectedly high medical expenses by covering claims that exceed a certain level. The federal government had provided a reinsurance program to health insurance providers in the marketplace during the first three years of the ACA’s implementation by covering individual claims above $45,000. This program was designed to assuage health insurers’ uncertainty about the health status of previously uninsured individuals purchasing health insurance through the marketplace. The ending of the federal reinsurance program in 2017 caused insurance premiums to increase across the United States as health insurers faced increased risk and instability in health insurance marketplaces. In fact, Oklahoma’s health marketplace only had one health insurance provider participate in open enrollment in 2017 and 2018.
Oklahoma submitted a proposal for a Section 1332 waiver to create a reinsurance program for health insurance plans on Oklahoma’s ACA marketplace in 2017. Supporters argued it would stabilize the health insurance market in Oklahoma by lowering health care premiums by up to 35%. Less expensive health insurance premiums would make health insurance more affordable for all and eventually save the federal government money through the reduced cost of health insurance subsidies.
The state worked with the federal government to submit the waiver application, but the federal government was not able to approve the waiver in time for the 2018 open enrollment period. The state ultimately withdrew its application for a Section 1332 waiver.
Oklahoma has thus far only pursued federal approval of a Section 1332 waiver for its reinsurance plan. However, the Trump Administration’s eased rules for application now allow the Governor to apply for federal approval of a Section 1332 waiver without first seeking approval of the Oklahoma Legislature. This allows the new Governor increased flexibility to explore what options may be available to increase consumer choice, lower the costs of health insurance, and expand health coverage in Oklahoma.