Vermont posted a draft 1332 waiver proposal for public comment on February 8, 2016. Vermont proposes to eliminate the ACA requirement that small employers enroll through a Small Business Health Options Program (SHOP) web portal and instead preserve its current direct enrollment process, which allows small employers to enroll directly through insurers rather than through a state website. The proposal may serve as a model for the 19 other states with state-based SHOPs—16 State-Based Marketplaces (SBMs) and 3 SHOP-only SBMs—as well as any of the remaining 30 states with a Federally Facilitated Marketplace (FFM), which may be considering running their own SHOPs using direct enrollment rather than a SHOP web portal.
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 Vermont Propose to Waive?
Vermont proposes "a waiver of the federal requirement that employers enroll through an internet portal" so that the state can maintain its current direct enrollment system under which small employers and employees enroll directly through insurers rather than through the Vermont Health Connect (VHC) website. Under Vermont's version of direct enrollment, employers have the full choice of available Qualified Health Plans (QHPs) that have been certified by VHC, and employees can enroll in QHPs across the insurer or insurers of the employer's choice. The insurer is responsible for all employer and employee notices, premium processing, and reporting of enrollment data. VHC would continue to certify QHPs, determine eligibility for the small business tax credit, and provide for an appeals process.
Vermont contends that the waiver will preserve streamlined access to the small group market and avoid market disruption associated with developing and implementing the SHOP web portal. The waiver is needed because CMS, which provided transitional flexibility to state-based SHOPs to rely on direct enrollment for 2014 to 2016 enrollments, has not extended that flexibility to 2017. This means Vermont must implement a SHOP website for 2017 in the absence of a waiver.
In making its case for preserving direct enrollment, Vermont notes that it first chose this path when the VHC SHOP was not deployed successfully for 2014 and Vermont took advantage of federal flexibility to replace its SHOP website with direct enrollment through insurers. The state made this direct enrollment process the only way to purchase small group coverage. Vermont also merged its small group and individual markets to create a larger single risk pool and to provide seamless coverage, including credit for cost-sharing for individuals who keep the same plan when churning between the small group and individual markets.
Vermont achieved the highest SHOP enrollment of any state with 33,696 individuals enrolled in 2014 through the state's unique combination of reforms. Enrollment grew to 44,000 by January 2016, and Vermont expects enrollment to continue growing with an expansion of the small group market to 100 employees this year and a planned expansion to larger groups in 2018. To preserve its gains and continue growing, Vermont proposes to waive the requirement in Section 1311(b) of the ACA that it design a SHOP internet portal to enroll employers and employees in small group QHPs. Vermont also proposes to waive Section 1311(c) requirements pertaining to small group rating and enrollee satisfaction surveys, as well as all other references to SHOP internet portal requirements in Sections 1311(c) and 1311(d). Vermont's waiver also includes a list of the implementing regulations the state seeks to waive.
What Can Other States Learn from Vermont's Proposed Waiver?
Vermont's waiver could have broad applicability since there are 19 other states with state-based SHOPs—16 SBMs and 3 SHOP-only SBMs. It also is possible that any of the remaining 30 states with an FFM may want to consider running their own SHOPs using direct enrollment rather than a SHOP internet portal, given how difficult it has proven to build a strong SHOP enrollment under the ACA-prescribed approach.
Vermont's proposal to waive the SHOP internet portal requirement provides a model that could be replicated by other states in addressing the 1332 guardrails. Specifically, Vermont asserts that its draft waiver proposal complies with the four statutory guardrails as follows:
- Comprehensiveness of Coverage. Vermont is not proposing any waivers with respect to the ten Essential Health Benefits (EHBs).
- Affordability of Coverage. Maintaining the current SHOP enrollment process will help the state implement its growth plans, which will help preserve stable and affordable rates. Vermont also will continue to limit enrollment to QHPs that have been subject to rate review prior to certification.
- Scope of Coverage. Vermont contends that small employers may cease offering coverage if they encounter challenges with a newly built SHOP portal that makes enrollment more difficult. Vermont also claims that resources devoted to building a SHOP portal will reduce resources for the outreach and education efforts that have helped build the current enrollment.
- Federal Deficit. The proposal will maintain Vermont's current enrollment process for small businesses, requiring no additional resources or funding from the federal government. Vermont will also continue to fund VHC through the Health Care Resources Fund, requiring no additional state funding.
Other technical and policy issues for states to watch with regard to Vermont's waiver include:
- Public Comment Period. Vermont has released the draft waiver for a 30-day public comment and notice period. The state does not have any federally recognized Indian tribes or groups. Vermont will hold the required public forum six months after the waiver is implemented, and annually thereafter.
- Required Reporting. Vermont is requesting that the Secretary allow the state to provide reports to the Secretary annually rather than quarterly (as currently required) due to the limited nature of the waiver. Vermont will report to the Secretary six months after the waiver has been granted.
- January 2017 Implementation. Vermont seeks to implement the waiver immediately upon approval to prevent disruption of its current practices.
Vermont's waiver, which seeks to preserve direct enrollment through insurers as an alternative to enrollment through a SHOP web portal, offers a model for any state interested in maintaining the flexibility CMS provided for the 2014 to 2016 plan years. If direct enrollment proves more effective at growing SHOP enrollment than the ACA-prescribed approach, other states may want to consider switching to the direct enrollment model. CMS made a partial accommodation in this direction by establishing a new choice model in the 2017 payment notice, which allows for "vertical" employee choice across all metal levels of an insurer's product suite. With the limited success of SHOP in most states, there is good reason for CMS and states to continue experimenting with new approaches. If there is enough interest in preserving direct enrollment, another option would be for CMS to extend transitional flexibility to all states for 2017.