Developments in Section 1332 State Innovation Waivers

Halfway through the first year that states are eligible to implement Section 1332 Waivers, and with states seeking to stabilize their markets in the face of uncertainty at the Federal level, the pace is picking up on Section 1332 Waivers.  In recent weeks, there have been two major developments on this front with the Federal government approving Alaska’s waiver request and Iowa submitting an unprecedented emergency and abbreviated Section 1332 Waiver request. More details on both of those developments are below. Additionally, the Federal agencies made a preliminary determination on June 20th that Minnesota’s Section 1332 Waiver application is complete starting the clock on review and approval.

Alaska

Alaska’s Section 1332 Waiver was approved on July 7th, allowing the state to receive Federal pass-through funding for its state-based reinsurance program starting in 2018.
As a reminder, Alaska submitted a Section 1332 Waiver application in December 2016, seeking Federal funding to support the Alaska Reinsurance Program (ARP), an invisible high-risk pool program that went into effect this year. The state requested pass-through funding from savings to the Federal government since the ARP is making premiums, and as a result federal premium tax credits, lower than both would be without the waiver. Unrelated to the ARP, the state also sought to waive the opportunity to establish CO-OP health plans in Alaska.

In their waiver approval, the Department of Health and Human Services (DHHS) and the Department of Treasury jointly granted the state the ability to waive the single risk pool requirement under Section 1312(c)(1) in order to implement the ARP, allowing carriers to include ARP payments when establishing their index rate. Subsequent to Alaska filing its waiver, the agencies clarified that, in order for a state to receive pass-through funding, it would need to request waiver of a related provision of the ACA. The approval also allows the state to receive the requested pass-through funding from savings to the premium tax credits. The agencies did not approve the state’s request for a waiver related to CO-OPs.

As outlined in the Specific Terms and Conditions (STCs), the waiver is effective January 1, 2018 through December 31, 2022, with the following contingencies:

The state must enact legislation to provide required state funding for the ARP (to bridge the different between the Federal pass-through funding and the full cost of the program) for 2018; and
The state must enact legislation to authorize the ARP past 2018 by September 2018.

The STCs also outlined estimates for pass-through funding based on, but not the same as, estimates in the state application. The Federal government projects that the 2018 pass-through funding amount will be $48,362,287, and that $322,652,234 of Federal pass-through funding will be provided over the full five-year waiver period.  However, the actual funding amounts will be determined annually by October 31st of the prior year, based on data and estimates submitted by the state. Losses in shared responsibility payments and reductions in Exchange fees will be factored in. Payments will be made quarterly in advance of ARP payment to issuers, and the funding can be used both to pay claims and for administrative expenses related to the ARP.

Iowa

On June 21st, Iowa submitted an abbreviated and “short-term” request for a Section 1332 Waiver aimed at stabilizing the state’s individual market. Iowa expressed concerned that,
without a waiver, there will be no carriers on the state’s health insurance Marketplace in the vast majority of the state.

The state is seeking to implement a Proposed Stopgap Measure (PSM) program, which would – effective 2018 - include:

A reinsurance program – The state proposes to supplement its existing traditional (attachment point) reinsurance program.
A state-based premium subsidy mechanism – The state will provide flat-dollar, age and income-based premium subsidies for all individuals who purchase the standardized plan outlined below. 
A state-based standard health benefits plan – As a condition of receiving reinsurance funding, the state will require each carrier to offer the standard Iowa PSM Plan created by the state within the Silver actuarial value range. These will be the only plans available in the individual market in 2018 other than grandfathered and transitional plans. 
In order to implement this plan, Iowa seeks waiver of:
Section 5000A of the Internal Revenue Code (individual coverage requirement);
Section 36B of the Internal Revenue Code (premium tax credits)
Section 1402 of the Affordable Care Act (cost-sharing reductions)
Section 1302 of the Affordable Care Act (metallic coverage levels)

The state also seeks pass-through funding related to the waived premium tax credits and cost-sharing reductions to fund the state-based premium subsidies and reinsurance program.

Iowa acknowledged in its application that the application and process it has undertaken do not meet the requirements under Section 1332 (including related to public input, comparability, and several other application requirements) and seeks the Federal administration to waive Section 1332 regulatory requirements under the President’s Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal (the Executive Order). Iowa also requested that, if the Federal administration determines that a Section 1332 Waiver cannot be granted, it should exercise flexibility under the Executive Order to provide emergency relief. The Executive Order did direct Federal agencies to promote state flexibility, including via waivers, but expressly “consistent with applicable law.” However, Iowa’s application cites prior conversations regarding this request with “DHHS senior level management.”

For more information about the these and other Section 1332 waivers, click here for PCG's updated report.