On June 12, Iowa submitted a sweeping Section 1332 waiver that would replace the Affordable Care Act’s (ACA) premium tax credits with a new state-administered tax credit and a reinsurance program.1 The state tax credit could only be used for a single state-defined silver plan that would be the only plan offered in the state’s individual market.
Iowa acknowledges that its “proposed stopgap measure” does not comply with the requirements for 1332 waivers. But the state cites the potential for “a total collapse of Iowa’s individual health insurance market” in 2018 as a reason for the federal government to grant “emergency regulatory relief” for a one-year period. Wellmark BlueCross BlueShield has announced that it would return to the individual market if the plan is approved.
The State had faced the potential of having no insurers offering ACA-compliant plans in 94 of 99 counties in 2018, but that dire situation was somewhat ameliorated on June 19, when the last remaining statewide insurer, Medica, announced that it would remain in the Iowa individual market, albeit with an average statewide rate increase of 43 percent.
The Iowa submission is short on details, but does outline a series of major changes:
- Iowa estimates that federal spending on ACA premium tax credits would increase to $304 million in 2018 absent the waiver. The state proposes to instead split those funds between a new $220 million state tax credit program and an $80 million reinsurance program.
- The state premium tax credits would be age and income adjusted. But unlike ACA tax credits, they would not be adjusted for premium increases or differences across rating areas. The proposed age and income variations generally favor younger and higher-income individuals as compared to the ACA, although the state estimates that all individuals will pay higher net premiums in 2018 than in 2017 because of large premium increases.
- The state-defined single silver plan, the only plan for which state premium tax credits are available, would be offered on a guaranteed issue basis and include federal essential health benefits (EHBs), with no annual or lifetime limits.
- Insurers would be allowed to continue renewing transitional or grandmothered plans. Together with grandfathered plans, these are a major factor in the Iowa market, with 72,000 lives in the ACA-compliant coverage and 85,000 lives in non-compliant plans.
The proposal seeks federal feedback within 14 days, and cites previous “conversations with HHS senior level management.” But granting the waiver on Iowa’s aggressive timeline would require the Centers for Medicare & Medicaid Services (CMS) to circumvent major elements of the Section 1332 waiver process and show flexibility on some statutory requirements of Section 1332, such as maintaining the ACA level of affordability and coverage.
Challenges Ahead for Iowa’s Waiver
Iowa’s proposal identifies four provisions of the ACA to be waived in order to enact its proposal: the individual mandate, premium tax credits, cost sharing reductions and metal levels. There are both procedural and substantive hurdles to overcome for approval.
Substantive Requirements. The statutory requirements for a Section 1332 waiver and the interpretations of those requirements issued by the Obama administration remain in place. There would appear to be some challenges to meeting these requirements, particularly the four “guardrails” that limit the breadth of any potential waiver, partly related to the absence of a federal baseline analysis that would help sort out who would be impacted in what ways.
- Affordability of Coverage. The affordability guardrail is the one most likely to cause problems, since Iowa’s proposal would appear to both decrease overall affordability and favor younger and higher-income enrollees to the disadvantage of older and lower-income enrollees.
- Scope of Coverage. No formal analysis is performed to determine the number of individuals who would be covered in individual ACA-compliant plans, making it difficult to determine how this proposal would compare with the current market now that Medica has agreed to offer statewide coverage.
- Comprehensiveness of Coverage. The single silver plan covers all essential health benefits and state mandates, so there would not appear to be an issue with the benefits’ comprehensiveness.
- Deficit Neutrality. There are no detailed calculations of the federal deficit impact, but Iowa did design its program so that the cost of the premium subsidies ($220 million) and the reinsurance program ($80 million) are below the estimated 2018 federal premium tax credit expenditure of $304 million.
Procedural Hurdles. Iowa acknowledges that its proposal lacks several components of a standard Section 1332 waiver application that are specified in statute, federal regulations or the recently published checklist.2 The most glaring omission is the absence of a formal actuarial or economic study, which makes the guardrail analysis very difficult. In asking for feedback in 14 days, Iowa suggests that some of the normal requirements are unnecessary in the context of a one-year transitional plan, and that it will comply with some others (like public notice or regulation development) as the federal review progresses. Acknowledging these issues, Iowa asks that its waiver be considered under both Section 1332 and Executive Order 13765, where President Trump exhorted regulators to “exercise all authority and discretion available to them to provide greater flexibility to states.”3
The breadth of procedural and policy issues that are raised by the Iowa proposal means that there is sure to be controversy, if not legal challenges, if the proposal is approved. That said, Department of Health and Human Services (HHS) Secretary Tom Price has praised Iowa for its innovative approach, and the state could still face a market crisis if Medica were to reverse course before the fall, as the company suggested it could, depending on developments. 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 the unorthodox Iowa proposal is handled.