Health reform's escape hatch may be too narrow for states seeking to use it

Senator Ron Wyden

The Obama administration may have disappointed anyone banking on an Affordable Care Act provision allowing states to duck many of the law's federal mandates by finding homegrown ways to ensure affordable coverage.

Under Section 1332 of the Affordable Care Act, states can ask to opt out of most of the law's major insurance components—including the insurance exchanges, minimum benefit packages and the individual and employer mandates—but final guidance the administration issued late last week (PDF) included some significant barriers.

“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 inclusion of the waiver authority in the law was championed by Sen. Ron Wyden (D-Ore.). Wyden praised HHS last week for taking a step 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 the agency included restrictions in its guidance that will make it hard for states to take advantage of the promised flexibility.

“Unfortunately, the guidance speaks more to what cannot be done than what can be done,” said Deborah Bachrach, a partner in the law firm of Manatt, Phelps & Phillips and former Medicaid director of New York state.

States are most likely to be concerned about a section in the HHS' guidance document that bars states from achieving budget neutrality across 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.

The guidance “takes most of the bite out of the waivers,” said Yevgeniy Feyman, a fellow at the Manhattan Institute, a conservative think tank. “Red states would probably do something along the lines of spending more on Medicaid and less on the exchange population to balance that out. But that's effectively impossible to do now.”

The National Governors Association, which submitted list recommendations to the Obama administration in October, expressed disappointment in the result.

“The guidance is pretty far from the flexibility the governors asked for,” said Frederick Isasi, director of the health division at the NGA. 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 won't accommodate different rules for different states, HHS said in the guidance. Thirty-seven states and the District of Columbia currently rely on the federal platform to enroll residents in coverage.

For example, waivers that would require changes to the calculation of financial assistance for plans sold on the insurance exchange, for example, would not be feasible, HHS said.

The guidance also appears to forbid states from getting rid of the individual or employer mandate, noting that “certain changes that affect Internal Revenue Service administrative processes may make a waiver proposal not feasible to implement.”

“At this time, the IRS is not generally able to administer different sets of rules in different states,” the guidance adds.

Before HHS issued the guidance, Arkansas, California, Hawaii, Massachusetts, Minnesota, New Mexico and Rhode Island had expressed some interest in seeking a 1332 waiver. A group of activists in Colorado, meanwhile, have secured a spot on a 2016 ballot for single-payer system, which would have to be implemented under a 1332 waiver.

The states in the best position to take advantage of the waiver authority may be the 13 that fully operate their own exchanges (Hawaii and New Mexico use It is unlikely that any state would build its own exchange now for the sake of seeking a 1332 waiver, according to 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,” Haislmaier said.



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