Massachusetts posted a draft 1332 waiver proposal for public comment on February 2, 2016. The waiver proposes to preserve certain features of the Commonwealth's current small group market, which was merged with the individual market prior to the adoption of the Affordable Care Act. The proposal may serve as a model for other states with merged markets (Vermont and the District of Columbia) or for states contemplating a similar market merger in the future.
What Are 1332 Waivers?
Section 1332 of the Affordable Care Act (ACA) authorizes states to request waivers from the U.S. Departments of Health and Human Services (HHS) and Treasury of key components of the ACA's coverage provisions, including those related to benefits and subsidies, the Marketplaces, and the individual and employer mandates. While 1332 waivers provide new flexibility for states, these "state innovation" waivers also must preserve core features of the ACA, such as the prohibition on denying coverage or increasing premiums based on medical history. In addition, 1332 waivers must meet four guardrails designed to ensure that coverage remains as affordable, comprehensive, and accessible as pre-waiver coverage and that the waiver does not contribute to the federal deficit.
Waivers can take effect as early as 2017, subject to an approval process that includes statutory and administrative requirements. Waivers require legislative authorization and public hearings at the state level, and public comment periods at the federal level. HHS posted a 1332 Fact Sheet and FAQ on July 22, 2015, that summarized procedural requirements from earlier guidance and encouraged states to contact HHS with questions about their waivers. HHS and Treasury released joint guidance on December 11, 2015, that summarized how the Departments intend to interpret the statutory conditions for granting a waiver when they review applications.
What Provisions of the ACA Does Massachusetts Propose to Waive?
Massachusetts proposes to "preserve the Commonwealth's long-standing version of a merged market, which blends the shared risk pool and common products of a federally-defined merged market with two features of a typical small group market." Those features, which are common to group market practices nationwide, allow insurers to enroll small groups in coverage on a rolling basis throughout the calendar year, and to offer new products and refresh rates for small group plans on a quarterly basis. Enrollment and rate changes for the individual market would take place annually as required by the ACA. The Commonwealth has had a hybrid merged market structure for over a decade that, without a waiver, will need to transition to a uniform annual enrollment and rating system by 2018.
Massachusetts contends that federal requirements to phase out rolling enrollment and quarterly rate changes will disrupt coverage for 90% of the Commonwealth's small employers and employees, and increase small group rates by 10% to 30% as insurers lose flexibility to respond to market dynamics throughout the year. As a result, fewer small employers will offer coverage and more employees will become eligible for ACA-subsidized coverage (approximately 1.5 million residents enrolled in employer-sponsored insurance have incomes below 400% of the Federal Poverty Level (FPL)).
To avoid the disruption associated with transitioning to a calendar year process, Massachusetts proposes to modify Section 1312(c) of the ACA "to permit issuers of small group plans to modify the index rate and permitted plan-level adjustments, no more frequently than quarterly and only for small group plans." By waiving Section 1312(c), the Commonwealth would waive the associated regulation requiring issuers in a merged market to ensure coverage is offered on a calendar year basis.1
What Can Other States Learn from Massachusetts' Proposed Waiver?
Massachusetts is the first state to release a draft state innovation waiver accompanied by a detailed actuarial analysis to support its assertion of meeting the statutory guardrails. Specifically, Massachusetts asserts that its draft waiver proposal complies with the four statutory guardrails as follows:
- Comprehensiveness of Coverage. Massachusetts is not proposing any waivers with respect to the ten Essential Health Benefits (EHBs). While the timing of a small group's plan year could impact the specific benchmark plan applicable to enrollees, the timing will not impact enrollee access to the same EHBs they would otherwise be entitled to within their plan year.
- Affordability of Coverage. Massachusetts provided an actuarial analysis estimating increased premiums of 10% to 30% and a onetime increase of up to 32% in cost-sharing for the highest utilizers during the 12 months following the transition to calendar year rating. Increases to small group rates would also impact individual rates given the single risk pool that covers both individuals and small groups in a merged market.
- Scope of Coverage. Massachusetts expects the waiver will maintain or increase the number of covered residents because it will prevent premium and cost-sharing increases and preserve more affordable coverage.
- Federal Deficit. Massachusetts provided a detailed deficit neutrality worksheet showing it does not anticipate any increase in the federal deficit as a result of the proposed waiver. The proposal will not require any new investments, infrastructure, or administrative processes and will not impact other deficit variables, such as changes in revenue. To support its deficit analysis, Massachusetts conducted a landscape scan of the President's Fiscal Year 2016 Budget and Congressional Budget Office publications. Massachusetts also assessed whether the proposal would have an impact on take-up of the small business tax credit or any broader shifts in employer or employee behavior and impacts on federal spending.
Other technical and policy issues for states to watch with regard to Massachusetts' waiver include:
- Public Comment Period. Massachusetts provided an extensive public comment period regarding opportunities under state innovation waivers. The Health Connector led an interagency effort which included seven public meetings with representatives from consumer groups, insurers, providers, business entities, agents, brokers, and labor representatives prior to the release of the waiver. The Health Connector also engaged in a separate consultation process with federally recognized tribes. The draft application is available for a 30-day comment period and is posted on the Connector's website.
- Required Reporting. Massachusetts is requesting that the Secretary allow the Commonwealth to provide reports to the Secretary annually rather than quarterly (as currently required) due to the limited nature of the waiver. Massachusetts will report to the Secretary upon completion of the first six months of the waiver.
- January 2017 Implementation. Massachusetts seeks to implement the waiver as of January 1, 2017, in order to prevent disruption of its current practices.
- Ability to Withdraw. Massachusetts is the first state to request the ability to revert from the waiver if market conditions justify such a change. Any such reversion would be done only after engaging in a process with HHS and preparing the insurance market for transition.
The Massachusetts waiver approach, which seeks to preserve certain small group market practices that were retained when the Commonwealth merged its individual and small group markets, offers a model for other states considering an ACA-permitted merger. As individual and small group rates converge, other states may find market merger to be attractive, especially if they can preserve small group practices such as rolling enrollment and quarterly rate changes. In addition, states should monitor Massachusetts' application closely to see how HHS and Treasury respond to the Commonwealth's detailed actuarial analysis and landscape scans, as it may serve as the future benchmark for other wavier applications.