United States: HHS And Treasury Issue Guidance On 1332 Waivers

While the Affordable Care Act (ACA) created a multitude of new requirements centered around the subsidies to individuals in the new Marketplaces, it also created a potential safety valve for states to make adjustments to the federal system beginning in 2017 under Section 1332 State Innovation Waivers. Several states, including Arkansas, California, Hawaii, Massachusetts, Minnesota, New Mexico, Rhode Island, and Vermont, have indicated an interest in pursuing a Section 1332 waiver, but no such waiver application has yet been submitted or approved. On December 11, 2015, the Department of Health and Human Services (HHS) and the Department of the Treasury released draft guidance, further defining the requirements states must meet for a 1332 waiver to be approved. Comments on the guidance can be submitted at any time; there is no deadline.

Section 1332(b) of the ACA provides the four requirements that waiver applications must meet in order to be approved by the Secretary:

  1. Provides coverage that is at least as comprehensive as coverage offered through the Exchanges;
  2. Provides coverage and cost sharing protections against excessive out-of-pocket spending so coverage is at least as affordable as under the Act;
  3. Provides coverage to at least a comparable number of its residents; and
  4. Will not increase the federal deficit.

The guidance further defines these four requirements, including the criteria the Secretary will use in evaluating whether the requirements have been met and the economic and actuarial information that must be submitted in support of a waiver application. Overall, the new guidance seeks to ensure that coverage gains, particularly within certain sub-populations, become "floors" which a waiver can increase but cannot reduce, outlines additional details on the types of data states must provide as part of a waiver submission, and narrows the flexibility of the waiver as part of a systemic reform of a state's health programs.

The new guidance provides several examples of waiver requests that would cause a waiver to fail federal review, including:

  • increasing the number of state residents with large health care spending burdens relative to their income;
  • reducing affordability or comprehensiveness of coverage for vulnerable groups, such as low-income individuals, elderly individuals, and those who have or are at risk of developing serious health issues; and
  • reducing the number of individuals with coverage that provides a minimal level of protection against excessive cost sharing.

States understand the fundamental objectives of Section 1332 are to expand coverage or at least maintain the same levels of coverage, so these warnings are not unexpected. There is little guidance provided, however, on the types of waiver requests that would successfully pass federal review.

The guidance also provides greater specificity as to the data and economic analytics, such as micro-simulation, that states will be required to provide to support their waiver requests. States understand the need to make some investment in building a state-specific model. While the requirements go beyond what a state would need to provide to support a Section 1115 Demonstration Project for Medicaid, they are reasonable expectations if a state intends to submit a proposal that touches the entire health insurance system. For a state that is serious about transformation, this is not an insurmountable hurdle.

Additionally, under the guidance, Medicaid and the Children's Health Insurance Program (CHIP) are treated separately from the rest of the health insurance system. Thus, projected savings from reforms in those programs would not be considered in determining budget neutrality of a 1332 waiver. The Administration is also requesting that an application show that a waiver would be budget neutral in each year of the demonstration period. The guidance is ambiguous on this point; however, as language also suggests an application may not "fail" if it is not budget neutral in each year.

Background on Section 1332 Waivers

Section 1332 provides that "[a] State may apply to the Secretary for the waiver of any or all of the requirements ... with respect to health insurance coverage ..." (emphasis added). The requirements are as follows:

  • (A) Part I of Subtitle D
  • (B) Part II of Subtitle D
  • (C) Section 1402
  • (D) Sections 36B, 4980H, and 5000A of the Internal Revenue Code

(A) Part I of Subtitle D: Establishment of qualified health plans, includes:

  • Qualified Health Plans (QHPs)
  • Essential Health Benefits (EHB) requirements
  • Annual limits on total cost sharing
  • Actuarial value standards for "metal level" plan categories and catastrophic plan
    • Eligibility for enrollment in catastrophic plan
  • Special rules related to abortion services
  • Definition of individual, small group and large group markets, aggregation rules for small and large employers

(B) Part II of Subtitle D: Establishment of health benefit exchanges, includes:

  • Establishment of Small Business Health Options Program (SHOP) and individual exchanges
  • Products sold through exchanges
  • Exchange functions
  • Medicaid eligibility and enrollment facilitation by exchanges
  • Self-sustaining requirements
  • Certification of plans and requirements to submit justification for premium increases
  • Limitations on exchange contracting rules (including limitations re: insurance issuers operating exchanges for the state)
  • Requirements for plans to reward quality through market-based incentives and quality improvement activities – patient safety, hospital readmissions, etc.
  • Application of mental health parity to QHPs
  • Navigators
  • Single Risk Pool
  • Limitations on who can use the exchange

(C) Section 1402: Reduced cost-sharing for individuals enrolled in QHPs, includes:

  • Cost-sharing rules and how they are applied
  • How benefits in addition to the EHB are treated
  • Special rule for pediatric dental plans
  • Special rules for Indians
  • Rules for individuals not lawfully present

(D) Sections 36B, 4980H, and 5000A of the Internal Revenue Code, which include the eligibility rules for Advanced Premium Tax Credit (APTC) subsidies, cost-sharing subsidies, the employer mandate, and the individual mandate.

In a 2012 Final Rule, HHS and the Treasury set forth a process for states to apply for a 1332 waiver. A state's application must include a comprehensive description of the program, including an assurance that the state enacted legislation authorizing such a program. The application must also include an implementation timeline, an analysis of the waiver's impact on provisions of the ACA that are not waived, and a 10-year budget plan that is budget neutral to the federal government with supporting actuarial certifications and economic analysis. Section 1332 also permits states to apply in a coordinated fashion for waivers from Medicare, Medicaid, CHIP, and "any other federal law relating to the provision of health care items or services" for which the Secretary has waiver authority. A state, therefore, may submit a single application that includes waivers for other programs.

A state must provide for a process of public notice and comment, including public hearings, and a "meaningful level of public input." A state must also disclose the provisions of law that it seeks to waive. The Secretary shall make a determination on the application within 180 days of receipt. However, the entire process from completion of a draft waiver to final approval is likely to take more than 12 months. The waiver can be approved for up to five years and may be renewed.


Of note, the document has been published as guidance, rather than as a regulation, which means it will not be binding on a future Administration. In addition, the current Administration has asked for public comments and can make changes immediately. The public interests are protected by the four statutory requirements that provide guardrails so no experiment can go far off track.

States, which are the only entities that can apply for Section 1332, have expressed interest in using this new authority to solve problems both great and small. Those that are seriously interested in Section 1332 are unlikely to be discouraged or deterred by the standards set forth in the guidance, which can be changed over time.

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