1332 waivers, or state innovation waivers, allow states to apply to the federal government to waive certain provisions of the Affordable Care Act (ACA) and pursue innovative strategies for providing residents with access to quality, affordable insurance while retaining the law’s basic protections. However, there are two developments currently in motion that could make significant changes to these waivers.

One is the Alexander-Murray bill, which is indirectly connected to the Congressional tax bill currently in the process of reconciliation between the Senate and the House. The other is a bill currently being drafted by Senators Orrin Hatch (R-UT) and Mike Crapo (R-ID) that would overhaul the 1332 process, altering many of the original stipulations laid out by the ACA.

Currently, states may propose innovations and alternatives to the four pillars of the ACA, for a duration of 5 years. This includes the individual mandate, benefit and services, and Exchanges and Qualified Health Plans (QHPs). The current regulations exclude several ACA components from being waived, such as pre-exiting conditions, discrimination, annual & lifetime limits, rates on old vs. young consumers, dependent coverage up to age 26, and risk adjustment.

Even though the Hatch-Crapo bill would change much more than the Alexander-Murray bill, both would have significant effects on the above process. Currently, there are only nine states that have applied for a 1332 waiver, and out of those, only four have received approval. These effects would likely see an increase in 1332 waivers, but this could consequently cause the ACA to weaken as some states begin to waive every provision they can.

Alexander-Murray and the Congressional Tax Bill

While it may seem odd that a tax bill could affect the process used to obtain 1332 waivers, it appears to be the result of deal making. Last week, Senator Susan Collins (R-ME) announced she was promised that the Alexander-Murray ACA stabilization bill would be passed in return for her vote on the tax bill. The deal also included a promise to pass Collins’ own ACA stabilization bill, co-authored with Senator Bill Nelson (D-FL).

Collins was one of the Republican Senators who declined to vote for the Better Care Reconciliation Act, the Congressional ACA repeal and replace bill, ultimately leading to its failure. She has been very vocal about the need to fix healthcare, even if it is under the ACA and not a Republican plan, and is seen as a healthcare swing vote.

The first effect of the Alexander-Murray bill is restoring Cost-Sharing Reduction (CSR) payments though 2019, which Democrats have been trying to do since President Trump ended them in October. The second effect of the bill would streamline the 1332 process as a compromise

Republicans want to change the 1332 process to help states circumvent the ACA. Currently, in a 1332 application, a state needs to demonstrate that insurance coverage would be at least as affordable with the waiver as it currently is without it  The bill would make it so that coverage with the waiver would only need to have “comparable affordability” to current coverage.

It is also important to note that the second bill included in this promise to Collins, her own Collins-Nelson bill, would provide $4.5 million in total funding over 2018 and for 2019 for states that institute reinsurance programs, which is what 3 of the 4 states with approved 1332 waivers have used them for. However, this bill is apparently not yet finalized, as Collins has now stated that she wants a total of $10 million in funding.

Despite this bargain, there is no guarantee that the bill will pass. Collins’ deal was apparently made with Senate Majority Leader Mitch McConnel, but House Speaker Paul Ryan’s office has communicated that Ryan (R-WI) has not been included in any of these deals so far. This effectively means that the House has not promised anything, and the tax bill and Alexander-Murray bill are only connected by promises.

Collins received a great deal of national attention, both positive and negative, after announcing the deal between McConnell and herself. She went on a local station in Maine, WABI, to express that her vote on the tax bill is not final, especially if the amendments she wrote in are not included.  However, she made no mention of the deal with McConnell to pass the two ACA stabilization bills in return for her vote.

Though, if Collins’ amendments are included, and Ryan comes forward in support of Collins’ deal with McConnel, there is a good possibility that Alexander-Murray (and Collins-Nelson) could pass in the wake of a successful tax bill.  With it would come changes that would make 1332 waivers easier to obtain, meaning that we could see an increase in waiver applications.

Bill Being Drafted by Senators Orrin Hatch and Mike Crapo

Separate from Alexander-Murray and the tax bill, Senators Hatch and Crapo have been drafting a bill that would make major changes to 1332 waivers, both in acquisition and purpose.

On the surface, the bill would:

  • Allow governors to apply for 1332 waivers without their state legislature’s approval
  • Shorten the period that the Federal government has to review 1332 waiver applications
  • Create templates that make it easier for waivers to be automatically approved
  • Remove the barriers that prevent budget-neutrality through a 1332 waiver combined with a section 1115 (Medicaid) waiver

However, industry experts like Timothy Jost say that these changes could be used to reduce options for people with pre-existing conditions. The bill would allow 1332 waivers that reduce financial assistance for consumers or shrink the definition of essential health benefits, and would allow states to move people off of the federal exchange and on to private exchanges that do not have to adhere to the same standards.

According to Jost, this bill, “would gut the ACA,” because, “it gets rid of the guardrails.” He points to the vague language in the bill that would allow the HHS secretary to approve 1332 waiver applications if they, “assist in promoting the objective of affordability, market-based coverage for individuals seeking it, and consumer choice,” which could potentially extend the HHS secretary’s power over 1332 waivers very broadly.

Additionally, the bill would establish a measure to block any future efforts to interfere with a 1332 waiver once implemented. It would not allow a new HHS secretary to end an active 1332 waiver before it expires unless it violates its own statutes.  Healthcare professional Stan Dorn claims that this is dangerous because then a waiver could not be ended, “even if [it] were found to be hurting people by the scores.”

One of the most attractive selling points of Hatch-Crapo is the effect it would have on the budget neutrality requirement. Currently, a state needs to demonstrate that their waiver would not increase the deficit for each year individually, but many states find it difficult to achieve budget neutrality in the first couple years. The bill would instead allow waivers to be evaluated for budget neutrality on an aggregate 5-year basis.

Although this bill is still in development, there is a high probability it will pass if brought to Congress while the Republicans control a majority. House Speaker Ryan has indicated that the Republicans will take a break from comprehensive ACA repeal and replace legislation, and this bill would give them an opportunity to begin this process incrementally by allowing states to individually distance themselves from the ACA.

The Future of 1332 Waivers

While the 1332 waiver was created to allow states to innovate and improve on the ACA, less than 10 states have pursued one. This is partly because these waivers only became available on January 1st of this year, but it is also because the 1332 approval process is seen as a quagmire. It is difficult to properly meet all the conditions required for an application, and there is no guarantee that a timely response will come back.

Observing the shortcomings of the current system, both the Alexander-Murray bill and the Hatch-Crapo bill seek to amend the 1332 application process. However, even though they share this goal, they differ greatly in the scale of their changes. Alexander-Murray would simply relax the standards that applications have to meet, while Hatch-Crapo would radically alter most major stipulations.

It is not clear whether either of these bills will pass. Alexander-Murray will be dependent on kept promises should the tax bill pass, and Hatch-Crapo is still in its early stages. What is clear is that if either of these pass, there will be significant changes to 1332 waivers that could see the number of state applications skyrocket which could, in turn, undermine the strength of the ACA.

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The views and opinions expressed by the authors on this blog website and those providing comments are theirs alone, and do not reflect the opinions of Softheon, Inc. Please direct any questions or comments to research@softheon.com.

Sean Kirschner

Sean is a Business Analyst at Softheon. His objective is to provide insight into the current state of the healthcare landscape through research on both business and policy. He is also responsible for assisting the research team through creating and maintaining research briefings on various industry topics. He earned his bachelor’s degree in economics from Boston College.

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