New 1332 Guidance Gives States Lots to Think About

Health Update

By Katherine Hempstead, PhD, Senior Policy Advisor, Robert Wood Johnson Foundation | Joel S. Ario, Managing Director, Manatt Health

Editor’s Note: While Democratic victories in the U.S. House have fueled national conversations about some variant of Medicare for all, most of the policy change in the near term is likely to continue to be at the state level. In a new Health Affairs Blog post, summarized below, the Robert Wood Johnson Foundation and Manatt Health examine the consequences of the midterm election results for states, explore recent waiver guidance to encourage state action and look ahead at the states that might submit new waivers.

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Consequences of the Midterm Elections

Perhaps the most interesting 2018 result is that there are now 36 “trifecta” states, where one party controls the governorship and both branches of the legislature. The Democrats gained seven governorships, moving from eight trifecta states to 14. Given their commanding pre-election position, the Republicans still have their trifectas intact in 22 states. That leaves only 14 bipartisan states where the parties have to work together to move legislation.

These polarizing trends would seem to presage bold moves in both deeper blue and deeper red states. But that may not be the case. New Democratic administrations will be responding to strong demand for reforms in many states, but the focus will be on incremental progress in making premiums and cost sharing more affordable.

Recent Waiver Guidance Encourages State Action

States will have more flexibility under recent guidance from the Centers for Medicare & Medicaid Services (CMS), which rebrands “state innovation waivers” under section 1332 of the Affordable Care Act (ACA) as “state relief and empowerment” waivers. The guidance gives states more leeway to propose waivers that increase affordability at an aggregate rather than an individual level and permits enrollment in non-ACA-compliant plans. It also seems to solicit more transformative ideas from states but has an expressed preference for “private” market coverage that seems odd, given the context of the publicly subsidized and regulated insurance market that the ACA created.

Early indications are that the guidance has dampened enthusiasm for 2019 waiver applications that move in the direction of a Medicaid buy-in option. States interested in such a design are more likely to shape plans in ways that don’t require waiver approval or plan now to have a well-vetted approval ready to go after the 2020 election.

Auto-enrollment also is being contemplated in a form that would not involve a waiver application. Here the concern is running afoul of the budget neutrality requirement, since the expected enrollment increase is unlikely to be budget neutral. Budget neutrality is also an obstacle to other policy concepts from the blue states for enhancing benefits for low-income populations. Most of the big ideas for individual market reform that are in line with what the guidance encourages come from the red states.

Which States Might Submit New Waivers?

Iowa made waves with its proposed redesign of its health insurance market in 2017. Its “stopgap plan” was deemed “Robin Hood in reverse” for its elimination of cost-sharing reductions for all but the lowest-income members. Facing almost certain rejection by CMS, Iowa withdrew its proposal in the fall of 2017.

Since then, Iowa has seen notable improvements in both choice and affordability, with the addition of a new carrier and decreases in premiums for both subsidized and non-subsidized enrollees. Despite the re-election of Republican Governor Kim Reynolds, it is unclear if the state still has the same motivation to radically shake up its market. In addition, the original stopgap proposal, with its single plan designed by state government, perhaps does not fit with the new guidance’s preference for less regulated private market coverage options.

Similar to Iowa, in 2017, Oklahoma also was dealing with high premiums, a single carrier—and a withdrawn 1332 waiver. Oklahoma’s 1332 waiver application was for a fairly straightforward reinsurance plan, leaving many perplexed when CMS failed to approve it in time for the 2018 plan year. Behind that initial waiver, however, were ambitious plans for additional waivers addressing age rating, plan design, the mandated benefit and subsidy levels.

Like Iowa, Oklahoma got a new statewide insurance carrier last year, and premiums have changed in ways that benefit both the subsidized and the unsubsidized. Therefore, as in Iowa, the newly-elected Republican Governor Kevin Stitt may not be as motivated to pursue significant insurance market reform.

Finally, Idaho is another red state with an ambitious insurance reform agenda. Idaho had a much healthier individual market than Iowa and Oklahoma, with four carriers, low overhead for its state-based marketplace and low premiums. Despite this, last year then-Governor Ott signed an Executive Order charging the insurance department with developing alternative plans that might not have all the benefits of Qualified Health Plans and expanding Medicaid eligibility for those with complex healthcare needs. CMS made it clear that it would uphold federal authority and enforce the ACA—and Idaho temporarily retreated from its proposed “Freedom Plans.” The state maintained, however, the possibility of bypassing the 1332 process and deploying the plans anyway.

Since then, a new Republican governor has been elected and Medicaid expansion passed through a ballot initiative. Idaho has seen continuity in its individual insurance market for the 2019 plan year, with moderate premium increases and steady carrier participation.

Disruption or Continuity?

With their history of disruptive plans for their individual markets, these three states would seem to be the target market for the new 1332 waiver guidance—but they may not act. Iowa and Oklahoma have new competition and premium improvements. Once Medicaid expansion is enacted in Idaho, it should have positive effects on the state’s individual market. The federal liberalization around short-term and association health plans may provide relief for disgruntled and unsubsidized consumers in all of these states.

Perhaps most importantly, the midterm elections brought a Democratic majority to the House, temporarily removing the threat of further legislative attacks on the ACA; protections for pre-existing conditions have become a political talking point for both parties; and the culture war over healthcare seems paused, at least temporarily.

For the newly-elected governors in all three states, the benefits of upending their individual markets offer less reward as the insurance markets improve. In short, the less broken state individual markets are, the riskier it becomes to try and fix them.