The Trump administration has approved one 1332 waiver to date, but four more are pending, including a sweeping Iowa waiver. Here is where things stand today:
- Alaska’s reinsurance waiver was approved on July 11, providing the state with $323 million over five years in federal pass-through funding. The federal funding equals what the federal government expects to save in reduced tax subsidies as a result of Alaska’s reinsurance program, which reduced Affordable Care Act (ACA) premiums by 35% in 2017 and is projected to stabilize premiums long term.
- Three other states have filed similar reinsurance waivers seeking federal pass-through funding. Minnesota’s and Oklahoma’s waivers have been found “complete” by the Centers for Medicare & Medicaid Services (CMS) and could be approved any day. Oregon’s reinsurance waiver was filed August 31 and is still undergoing a completeness review.
- Iowa filed an updated version of its waiver on August 22, asking for “emergency relief” to eliminate its Marketplace and fundamentally restructure individual market benefits and subsidies in addition to establishing a state reinsurance program. The Iowa waiver differs from the other 1332 submissions focused on reinsurance, which the administration has already signaled interest in approving. It is still undergoing a completeness review, and because it proposes broad and significant waivers of the ACA, is being closely watched for what it might signal about how the Trump administration will apply 1332 guidance with respect to the four guardrails designed to protect consumers and federal funds. These guardrails include: a) Scope of coverage. The waiver must provide coverage to at least the same number of people. b) Comprehensive coverage. The waiver must require coverage that is at least as “comprehensive” as coverage offered through the Marketplace. c) Affordability. The waiver must provide “coverage and cost-sharing protections against excessive out-of-pocket” spending. d) Deficit neutrality. The waiver must not increase the federal deficit.
The Iowa waiver. The Iowa waiver would eliminate the ACA Marketplace and cost-sharing reduction (CSR) payments, replace its premium tax credits with a new state-administered tax credit, and create a state reinsurance program. The waiver would replace the current metal level choices (bronze, silver, gold, platinum) with a single state-defined silver plan and no cost-sharing reductions, which would be the only plan offered in the state’s individual market for 2018 and could only be purchased directly from insurers, agents or brokers in the off-exchange market. The plan would be compliant with federal essential health benefits (EHBs), with no annual or lifetime limits.
Iowa acknowledges that its “stopgap measure” may not comply with all the requirements for 1332 waivers but cites the potential for a “collapsing commercial individual health insurance market” as a rationale for the federal government to grant temporary relief for a one-year period. The filing emphasizes that Iowa’s individual market is uniquely dominated by a non-ACA-compliant sector that is larger than the ACA-compliant sector, and therefore the 56% average rate increase sought by Medica, the one remaining statewide insurer, would make coverage unaffordable for more people than it would in a state where a larger percentage of the population has ACA-compliant coverage that is eligible for tax credits to offset the increased premiums. Wellmark BlueCross BlueShield, which provides most of the noncompliant coverage, has announced that it would return to the individual market for 2018 if the plan is approved in a timely fashion. See the graphics and analysis at the conclusion of this summary for a closer look at how the large noncompliant population complicates Iowa’s challenges.
The Iowa waiver raises challenging issues substantively and procedurally, particularly with respect to the coverage and affordability guardrails:
- Scope of Coverage. The actuarial analysis finds a coverage loss in the unsubsidized population in all scenarios, but the decline is less in the waiver scenario than if Medica plans, loaded with a 56% rate increase, become the only available option. Surprisingly, the analysis finds no coverage losses from eliminating CSRs while sharply increasing deductibles for lower-income enrollees. Notably, the latter finding conflicts with the Congressional Budget Office (CBO) analysis of the Senate’s Better Care Reconciliation Act, which found a large drop in coverage for low-income enrollees confronted with high deductibles under that plan.
- Affordability of Coverage. The state premium tax credits would be age and income adjusted and would generally favor younger and higher-income individuals as compared with the ACA, with the goal of dramatically lowering premium costs for the currently unsubsidized population. This would be accomplished by eliminating CSRs and increasing cost-sharing under the standardized plan, to a $7,350 deductible per individual and $14,700 per family.1 Although certain office visits and other nonhospital services would have limited copayments, cost-sharing would be substantially less affordable for low-income enrollees who currently receive cost-sharing reductions. The Iowa proposal presents challenging affordability issues since it increases premiums and cost-sharing for some populations, especially older and lower-income enrollees, while providing more assistance to younger and higher-income enrollees, relative to the current ACA subsidies. How the winners and losers balance out, what the overall impact is on premiums, and whether there should be one aggregate assessment or separate consideration of vulnerable populations, as required by current guidance, will be hotly debated.
While Department of Health and Human Services (HHS) Secretary Tom Price has previously praised Iowa for its innovative approach, the breadth of issues that are raised by the Iowa proposal means that there is sure to be controversy, and likely to be legal challenges if the proposal is approved, especially on an expedited timeline. The one thing that can be said with certainty is that we will learn more about the Trump administration’s approach to 1332 waivers by watching how it handles the Iowa proposal.
A Closer Look at Iowa’s Individual Market
Figure 1: Iowa Individual Market Enrollment (2016, est.)2
Figure 2: Iowa Marketplace Enrollment (2015–17) and Enrollment Demographics Compared With the State (2017)3
A majority of Iowa’s individual market enrollees in 2016 (85,000 of 157,000) remained in non-ACA compliant plans (see Figure 1). The Iowa Marketplace has captured more than 75% of the population in ACA-compliant plans (55,000 of 72,000); but as illustrated in Figure 2, the Marketplace population is much older and lower income than the Iowa population as a whole. This is not surprising since those who choose to retain their pre-ACA policies will be the younger and healthier population that could pass medical underwriting and obtain cheaper and less comprehensive policies as allowed in most states before ACA regulations took effect. Many states allowed transitional policies (those purchased between 2010 and 2013) to be renewed in 2014, but a combination of state actions and insurer choices to discontinue non-compliant products have reduced this population over time so that Marketplace populations are larger and more balanced risk pools today. Iowa’s large transitional population is unique and is partially responsible for Iowa’s anticipated high premiums and low insurer participation in 2018. The continued availability of non-compliant plans has resulted in a Marketplace risk pool that is older and sicker than originally anticipated, contributing to higher costs and ultimately higher premiums and insurer exits.