Client Alert

We have recently seen an uptick in state initiatives designed to skirt requirements under the Affordable Care Act (ACA). We last wrote about Idaho’s failed attempt to permit health insurers to sell noncompliant plans, which was quashed by HHS in March 2018. Ohio is the latest state to have its attempt to undermine the ACA thwarted by HHS. Just two months after Ohio requested to waive the ACA’s individual mandate requirement, HHS denied the request, deeming Ohio’s 78-page application (which included an actuarial analysis and the results of a public hearing and comment period) incomplete under the ACA’s waiver provisions.

Unlike other states, which have engaged in attempts to end-run ACA requirements without HHS approval, Ohio sought to engage HHS in the process, submitting a formal waiver application under section 1332 of the ACA. Section 1332 waivers, known as “state innovation waivers,” are designed to allow states “to pursue innovative strategies for providing their residents with access to high quality affordable health insurance while retaining the basic protections of the ACA.” Under section 1332, states can seek to waive certain (but not all) ACA requirements, including section 5000A of the Internal Revenue Code related to the individual mandate.

Section 1332 waivers are discretionary, and HHS has indicated that it will not grant a waiver request unless the request demonstrates that:

(1) The proposal will provide coverage to at least a comparable number of the state's residents as would be provided absent the waiver; (2) the proposal will provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable for the state's residents as would be provided absent the waiver; (3) the proposal will provide coverage that is at least as comprehensive for the state's residents as would be provided absent the waiver; and; (4) the proposal will not increase the Federal deficit.

Ohio’s request, which was prompted by the state’s 2018-2019 operating budget requirement that the director of the Department of Insurance apply for the waiver, was submitted to HHS in March 2018. In its application, Ohio sought to waive the ACA’s individual mandate requirement, which requires individuals to obtain health insurance coverage. While the tax penalty for failure to comply with the individual mandate was repealed in late 2017, the mandate itself remains. Several states brought an action challenging the constitutionality of the mandate in the absence of the penalty, but Ohio did not join the suit.

In accordance with section 1332’s requirements, Ohio submitted a 78-page waiver application, including the analysis of an actuarial firm retained to “model the waiving of [the individual mandate] to ensure compliance with the 1332 waiver requirements,” including the four requirements described above related to scope of coverage, affordability of coverage, comprehensiveness of coverage and deficit neutrality. The application also included a summary of two public hearings Ohio held on its waiver application, and a summary of public comments it received during its 30-day public comment period.

According to Ohio’s application, opponents of the proposed waiver expressed concern about the stability of the marketplace in the absence of the individual mandate, predicting that waiving the mandate would “lead to an older, sicker insurance pool potentially leading to premiums to be less affordable and the marketplace to be less stable and [would] cause carriers to question their participation in the marketplace.” The Ohio Senate Democratic Caucus also objected to the request, contending that it undermines the purpose of section 1332 state innovation waivers, which are designed to give states the opportunity to innovate health care coverage or delivery, not to simply opt out of ACA requirements.

Nearly two months after Ohio’s waiver request was submitted, it was rejected by HHS as incomplete. According to HHS’s brief “Notice of Preliminary Determination of Incompleteness,” Ohio’s application was insufficient because it failed to describe a plan that would provide the requisite coverage under section 1332 and failed to describe the reason for the waiver request. The notice stated:

PPACA §1332(a)(1)(B)(i) requires a state seeking a waiver to submit an application with a comprehensive description of a program to implement a plan meeting the requirements for a waiver. PPACA §1332(b)(1) provides that a State plan, among other things, must provide coverage that is at least as comprehensive and affordable as that provided under Title I of PPACA, and must provide coverage to at least a comparable number of its residents as the provision of Title I of PPACA would provide. The application from the State of Ohio does not include a description of any program implementing a waiver plan for providing coverage that meets section 1332 requirements.

In addition, 45 CFR 155.1308(f)(3)(iii) requires the state to describe the reason for the waiver request. The application does not include a description of the reason that the state is seeking to waive IRC §5000A(a). For this reason and those described above, the Departments determined that the application is not complete.

HHS closed its letter noting that it is “happy to work with states to revise and re-submit their waiver applications.” It is unclear what Ohio’s next steps will be. A spokesperson for the Department of Insurance reported that the department is “determin[ing] potential next steps.”