Waiver flexibility could widen gap between states

In handing states greater flexibility to overhaul their insurance markets through waivers, the Trump administration has paved the way for states to diverge further in the access and affordability of its residents' coverage, insurance experts said.

Some warned that states that choose to use the flexibility in the new 1332 waiver guidance to encourage enrollment in cheaper but skimpier association and short-term plans could leave those who remain in Affordable Care Act-compliant plans worse off.

The ACA established a minimum floor of insurance coverage, but "with this guidance it's getting a lot of holes," said Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms. "Some states could pursue changes that could mean that coverage could be much more expensive for some people."

The CMS on Monday released guidance that makes it easier for states to get a 1332 waiver to alter certain aspects of the ACA, particularly when states plan to encourage the use of private insurance options and ACA alternatives, including association health plans and short-term, limited-duration plans.

CMS Administrator Seema Verma said the guidance, which is final, allows states new opportunities to address issues in their individual insurance markets, where coverage has become increasingly expensive for consumers and the federal government as choices have dwindled. States that have so far received 1332 waivers have been limited to implementing reinsurance programs, which have worked well at lowering premiums.

But the new guidance would allow states to get more creative by lifting several restrictions on the "guardrails" that limit the changes a state can make. The previous administration required states to demonstrate that their programs under a waiver would be at least as comprehensive and affordable and cover as many state residents as under the ACA, while also not increasing federal spending. It denied waivers if a state's changes were projected to reduce coverage for vulnerable groups, such as the low-income or elderly.

The Trump administration, however, will evaluate waiver applications based on how the state's changes would impact the availability of insurance coverage in the state, rather than assessing how changes would affect the amount of people actually enrolled in insurance. The guidance broadens the scope of what it considers to be affordable and comprehensive coverage to include association health plans and short-term limited-duration plans, which don't include all the consumer protections found in ACA-compliant plans. And it allows a state to pursue a waiver application without state legislation to start the process, saying a governor's executive order will do.

Moreover, instead of ensuring that coverage isn't reduced for vulnerable people, the guidance notes that waivers will be judged based on how it affects the whole population, rather than specific subsets. The CMS would consider a waiver that "makes coverage much more affordable for some people and only slightly more costly for a larger number of people," the guidance stated. That shift opens the door for states to provide residents with skimpier, albeit cheaper coverage, experts said. And that could lead to greater amounts of uncompensated care for providers in those states.

"You could have a proposal where yes, people with preexisting conditions end up paying more for coverage, so long as other people pay less," Corlette explained.

It's not a stretch to think that some states could end up with two markets: one for the healthy with lower premiums and one for the sick that's much more expensive, she said, adding that a proposal similar to the one Texas Sen. Ted Cruz unveiled last year isn't out of the question.

Cruz proposed allowing insurers to sell individual-market plans that don't meet the ACA's consumer protections as long as they offer at least one plan in the same market that complies with those mandates. Critics of that proposal argued it would turn the ACA-compliant market into something akin to a high-risk pool where premiums for sicker people would skyrocket.

The guidance "certainly opens the door for a much broader array of waivers, particularly waivers that would shift costs from higher income people to lower income people," said Matt Fiedler, an economist with the Brookings Institution.

Fiedler predicted that some states could reduce or take away subsidies for ACA-compliant exchange coverage and instead use it to subsidize coverage for people who enroll in short-term insurance plans to the detriment of the ACA marketplace. As healthier people left the ACA exchanges to enroll in short-term plans, the ACA market would become sicker and insurers would have to increase premiums. Without subsidies, few could afford ACA exchange premiums.

On Monday, Verma confirmed that a state could attach premium tax credits to short-term plans. But "unless the subsidies available for ACA compliant plans were meaningfully larger than those available for short term plans, then it's unlikely the ACA market would survive," Fiedler said.

Tricia Beckmann, a director at Faegre Baker Daniels Consulting, said the requirement that waivers continue to be budget neutral could constrain states from actions that would increase individual market premiums, however. As individual benchmark premiums increase, so do the amount of federal subsidies, and the state may have to figure out how to offset that cost, she said.

Some experts said the guidance's emphasis on fostering the growth of private coverage over public programs could mean that approaches some Democratic states want to pursue to expand coverage, such as allowing residents to buy into a Medicaid-style plan, for instance, would have a harder time achieving that end through a 1332 waiver.

But Chris Condeluci, a health policy consultant and former GOP Senate Finance staffer, argued the guidance doesn't necessarily spike the chance of a Medicaid buy-in program, but "signals to the states that if you offer additional private options like association health plans, you might have an easier pathway forward."

He doubted also that the new flexibilities would lead states to shift dollars to high-income people from lower income residents.

Others dismissed the idea that the individual market risk pool would become fragmented and suffer higher premiums as a result of the updated guidance.

"We've now heard this so many times that it's just getting old," said Doug Badger, a healthcare policy expert at the conservative Heritage Foundation, adding that those fears were present when the administration opted to remove the individual mandate penalty and premiums next year are going down.

The real problem the individual market is facing is that more people are opting to forgo coverage rather than pay an unaffordable premium, he said, adding that the 1332 guidance "will let states be a little more creative to attack the problem."

Susannah Luthi contributed to this story.

Correction: In an earlier version of this story, Matt Fiedler is quoted saying costs would shift from lower income people to higher income people. Costs would shift from higher income to lower income people.