The Obama administration may have disappointed states banking on an Affordable Care Act provision that would allow them to duck many of the law's federal mandates by finding homegrown ways to meet its coverage goals.
Under Section 1332 of the ACA, states can ask to opt out of most of the law's major insurance components beginning in 2017, including the insurance exchanges, minimum benefit packages and the individual and employer mandates. But based on guidance HHS issued this month, it may be quite difficult to get such a waiver.
“States were looking at 1332 as a magic carpet, and with this guidance, what they got was a subway token,” said Katherine Hempstead, director of health insurance research at the Robert Wood Johnson Foundation.
The waiver authority's inclusion in the ACA was championed by Sen. Ron Wyden (D-Ore.). Wyden praised HHS for taking steps toward realizing the so-called state innovation waivers, which he said would “allow states to innovate, while still achieving the objectives of the Affordable Care Act.”
But some stakeholders and policy experts say HHS has included restrictions in the guidance that will make it hard for states to take advantage of that promised flexibility.
“Unfortunately, the guidance speaks more to what cannot be done than what can be done,” said Deborah Bachrach, a partner at Manatt, Phelps & Phillips, and former New York state Medicaid director.
States are most likely to be concerned about a section in HHS' guidance that bars them from achieving budget neutrality between the new ACA waivers (under Section 1332 of the statute) and existing Medicaid waivers (known as Section 1115 waivers). That is, they can't borrow savings from one waiver to offset expenditures under the other.
“Red states would probably do something along the lines of spending more on Medicaid and less on the exchange population to balance that out,” said Yevgeniy Feyman, a fellow at the Manhattan Institute, a conservative think tank. “But that's effectively impossible to do now.”
That concern was echoed by the National Governors Association, which submitted a list of recommendations to the Obama administration regarding the waiver. “The guidance is pretty far from the flexibility the governors asked for,” said Frederick Isasi, director of the association's health division. The narrow interpretation, Isasi said, will make it difficult for governors to “develop coverage options that meet their own needs.”
Another stumbling block will be that HealthCare.gov won't accommodate different rules from different states, HHS said in the guidance. A total of 37 states and the District of Columbia currently rely on the federal platform to enroll their residents in coverage.
But waivers that would require changes in the calculation of financial assistance for plans sold on the insurance exchange would not be feasible, HHS said.
As a result, states in the best position to take advantage of the waiver authority may be the 13 that fully operate their own exchanges, which would exclude nearly every Republican-led state. It is unlikely that any state would build its own exchange now for the sake of seeking a 1332 waiver, said Ed Haislmaier, a health policy researcher at the conservative Heritage Foundation.
Haislmaier also noted that any state that does submit a 1332 waiver request for anything more than a minor departure from the ACA could wait a long time for an answer, because there's no statutory window for HHS to respond. “There is no hammer on the agency to do anything,” he said.
The guidance also appears to forbid states from eliminating the individual and employer mandates because the Internal Revenue Service wouldn't be able to manage different rules for different states.
Several states, including Republican-led Arkansas, Ohio, South Carolina and Texas, have expressed interest in a waiver. A group of activists in Colorado, meanwhile, have secured a spot on a 2016 ballot for a single-payer system, which could be implemented only under a 1332 waiver.
A spokesman for Arkansas Gov. Asa Hutchinson said the governor agrees the guidance is more restrictive than expected but remains interested in seeking a waiver. Other states either didn't respond to requests for comment or had not yet assessed the impact of HHS' interpretation.
A Wyden spokesman said the senator doesn't share the concerns expressed in the wake of HHS' guidance, which he said simply clarifies the statute.
“It's important that states are given as much flexibility as possible,” Wyden spokesman Taylor Harvey said. “However, the ACA set a bar for healthcare quality, affordability and accessibility. The State Innovation Waivers are meant to reach or exceed that bar. Anything less than that would undermine the purpose of the provision and the goals of the law.”