CMS allows states to get creative with federal exchange funds under 1332 waivers

States can use 1332 waivers to launch new financing options that resemble health savings accounts, according to CMS Administrator Seema Verma. But a former agency official warns that using any of the new flexibilities outlined could result in litigation.

This new account-based program would help subsidize healthcare expenses. Under this approach, states would provide a cash contribution to an account that people can use to pay both premiums and any out-of-pocket health expenses.

This approach maximizes consumer choice and engagement, giving people flexibility to make smarter decisions with their healthcare dollars because they keep any unspent funds in the account, according to Verma. This flexibility also helps to control premium hikes and limit the number of public subsidies paid out by establishing a clear individual healthcare budget upfront, she said.

"As state legislators, I hope it is now clear to you that the Trump administration is here to support your efforts to develop local solutions to provide your citizens with higher quality, more affordable health coverage," Verma said at the States and Nation Policy Summit of the American Legislative Exchange Council on Thursday.

The account idea is one of the four 1332 waiver concepts outlined by Verma during her remarks. The speech followed up guidance issued by the CMS last month. That document represented a dramatic overhaul of the current 1332 waiver process.

States can also develop a new premium subsidy structure and decide how the subsidies should be targeted, set the rules for what type of health plan is eligible for state premium subsidies to give people access to more options, and implement risk-stabilization strategies to address the costs of high-risk individuals to reduce premiums in the market for everyone.

But these ideas are not going unchallenged.

First, the new permissions must go through the rulemaking process, said Christen Linke Young, a fellow at the Brookings Institution and former CMS official, in an analysis.

"By releasing the document as guidance, the agencies are implicitly taking the position that it is an 'interpretative rule' exempt from the standard rulemaking process," she said. "However, the new guidance contains policy that would likely be classified under the (federal law) as a legislative rule. As a result, the agency likely cannot adopt these changes without notice and comment rulemaking," Young said.

The distinction is important. Any state looking to implement the ideas could be sued even if the CMS approved their 1332 waiver request.

Uncertainty about the validity of the guidance may mean few states will be interested in the new flexibilities offered by the CMS, according to Sabrina Corlette, research professor at Georgetown University. It's likely more will seek to launch reinsurance programs, which several states have already done under the 1332 waivers.

The new ideas outlined by Verma, especially the savings account model, will take considerable administrative work that could span months.

"There is a real risk for states if they spend the time and money on having an actuarial analysis performed, hire consultants and go through a public comment process, only to find out it was all a waste if the waiver gets locked up in court," Corlette said.

State officials under the guidance issued last month were given more autonomy to approve waiver plans by bypassing state legislative action. Instead, governors could submit waivers on their own.

Secondly, states could divert their Affordable Care Act subsidies to help consumers buy short-term plans, which may not have protections for people with pre-existing conditions.

The notice stated that a waiver would not be denied if it led to loss of coverage for some as long as the state ensured that another comparable number of people remain covered. The Obama administration had strict guidelines in place to ensure waivers wouldn't result in a loss of coverage.

The CMS hopes the new guidance will encourage creativity in waiver creation. So far, seven of the eight approved 1332 waivers focus on reinsurance programs. The new guidelines should also expedite the waiver approval process. Congress has pushed the agency to hasten its review of the waivers, holding several hearings on the process last fall.

States can request 1332 waivers for virtually every coverage component of the ACA as long as the state's healthcare coverage is consistent with the law's provisions and doesn't increase the federal deficit.

HHS under the Trump administration approved a 1332 waiver from Alaska, creating a state reinsurance program to reduce premiums, effective in 2018. Maine, Maryland, Minnesota, New Jersey, Oregon and Wisconsin received similar approvals. HHS under the Obama administration approved a waiver for Hawaii that required employers to provide more generous coverage than is required under the ACA.

States like Massachusetts and Oklahoma either withdrew their waiver requests or were denied because they couldn't be approved before last year's open-enrollment period.