Healthcare regulations and policies are very complex and ever-evolving. It’s important for managers of health plans and state Medicaid agencies to understand what new legislation means and how it affects their programs. Standards Perspectives brings you the latest details on new policies and standards so you can quickly and clearly learn what’s important to make the right decisions.

Innovation Waivers Allow States to Customize Health Reform for Healthcare

Waivers can provide states with more flexibility in how they operate their programs – beyond what is available under current law – and can affect program financing significantly.

The new administration offers encouragement to states to experiment with new approaches to provide residents with access to high-quality, affordable private health insurance. This was made possible by the Affordable Care Act (ACA) through 1332 State Innovation Waivers, which could play a key role in the next round of changes to healthcare. In addition, Section 1115 Medicaid Demonstration Waiversprovide states an opportunity to test new approaches in Medicaid.

Section 1332 Waivers

Section 1332 allows states to waive certain parts of the ACA and pursue innovative approaches that would let them adapt to federal requirements while meeting the specific needs of their citizens.

Developed with bipartisan support, 1332 State Innovation Waivers enable states to request five-year renewable waivers from the Department of Health and Human Services (HHS) and Treasury Department related to the ACA’s key coverage provisions, such as benefits and subsidies, marketplaces, individual/employer mandates and others.

To receive approval, the state must demonstrate that a proposed waiver will provide access to quality healthcare that is at least as comprehensive and affordable as would be provided without the waiver. Moreover, a proposed waiver should provide coverage to at least a comparable number of residents as would be provided coverage without a waiver. Finally, a proposed waiver must not increase the federal deficit.

This past March, Health and Human Services Secretary Tom Price sent letters to state governors reminding them of Section 1332 waivers. The letter “highlights State Innovation Waivers as opportunities for states to modify existing laws or create something entirely new to meet the unique needs of their communities,” according to Sec. Price.

To date, few states have initiated 1332 waivers. Those seen so far include allowing employers to enroll directly with health insurance issuers instead of through an Internet portal and changes to premium tax credits.

Section 1115 Waivers

States have used the more common 1115 waivers in a variety of ways, generally reflecting priorities identified by states and the Centers for Medicare and Medicaid Services (CMS). For example, Section 1115 waivers have been used to allow HHS to authorize demonstration projects that further Medicaid’s purpose. This enables states to test new approaches in Medicaid that differ from federal program rules.

As of February 2017, 33 states had 41 approved Section 1115 waivers that fall into five categories:

  1. Delivery system reform, including the Delivery System Incentive Payment (DSRIP) Program
  2. Alternative ACA Medicaid expansion models
  3. Managed long-term services and supports (MLTSS) through capitated managed care
  4. Behavioral health
  5. Other targeted waivers

States have a long history of using 1115 waivers, mainly for managed care delivery system models. Other frequent waiver requests include expanding Medicaid for foster children ages 18–21 and contraception services to members with incomes higher than the Medicaid standard. Recent requests have involved implementing Regional Health and Accountable Care Organizations and DSRIP programs as states attempt to improve care delivery while controlling costs (especially hospital).

What This Means for Medicaid

Looking ahead, states are likely to continue requesting waivers to implement provisions not allowed under current law. However, it is not yet clear what role Section 1115 waivers will play as the new administration and Congress consider repealing the ACA and consider broader changes to Medicaid financing. It is possible that waivers will be used to expand coverage for specialized services or populations beyond those currently covered in the federal regulations.

Though 1332 waivers apply only to private health insurance coverage and markets, not to public programs like Medicare or Medicaid, states can still seek multiple waivers from HHS. For example, they might ask permission to change their Medicaid programs under an 1115 waiver and their marketplace coverage under a 1332 waiver. In such cases, the federal government will evaluate each type of waiver separately: An 1115 waiver must still meet all of the existing standards for Medicaid 1115 waivers, and a 1332 waiver must meet the requirements explained above.

If new healthcare reforms remove required coverages or requirements (such as covering pre-existing conditions), states could use the 1332 waiver to offer those services using alternative payment options, such as reinsurance pools or “medical home” delivery methods.