Trump Administration Gives States More Power to Alter ACA Exchange Offerings

This story has been updated.

The Trump administration Monday moved to drastically overhaul section 1332 waivers under the Affordable Care Act (ACA), including giving governors the ability seek more flexibility without legislative approval, and to encourage people to sign up for plans that are not ACA-compliant.

With the midterm elections 2 weeks away, the CMS and the Department of the Treasury released guidance that they said would take effect immediately and gave more power to the states, saying they wanted to allow the ability to free up their individual insurance markets for more choice and competition and do away with “one-size-fits-all rules and regulations imposed by the Affordable Care Act.”

Republican governors, as well as some Democrats, have pushed for such flexibility; earlier this year, Idaho Republican Governor Butch Otter signed an executive order that directed the state’s Department of Insurance to allow health plans to offer coverage that did not meet coverage requirements under the ACA. At the time, CMS Administrator Seema Verma could not approve the plan; under the guidance released Monday, she can.

In explaining the rationale for the change Monday, Verma would not specify which states have asked for the changes to how section 1332 waivers are approved.

Until now, section 1332 waivers have been limited to allowing states to use the savings from lower premiums to provide additional reinsurance. Reinsurance programs allows insurers to cover its highest-cost patients without raising premiums on the whole population.

With the change, Verma said states have 5 things to keep in mind if they want to change coverage: “provide increased access to affordable private market coverage; encourage sustainable spending growth; foster state innovation; support and empower those in need; and promote consumer-driven healthcare.”

The administration will change how it evaluates the coverage available in each state. “In evaluating whether the state plan meets the comprehensiveness and affordability guardrails, the Departments will take into account access to affordable, comprehensive coverage to all state residents, regardless of the type of coverage they would have had access to in absence of the waiver,” according to the guidance released Monday.

States are encouraged to use association health plans and limited duration, short term health plans, and can use premium tax credit subsidies to do so, even though those plans do not include the 10 essential health benefits set forth in the ACA, nor are they prohibited from discriminating against patients with pre-existing conditions.

Healthcare advocates said those changes gut the ACA's protections.

"This guidance slashes the legs out from under the “comparable coverage” requirement by saying that, as long as comparable coverage is theoretically available, competing plans, operating by completely different rules, can swoop in, pick up all the good risks, and stash away huge profits, exempt from MLR [medical loss ratio] requirements," said Stan Dorn, a senior fellow at Families USA, in an email with The American Journal of Managed Care^® (AJMC^®).

Verma said the guidance had nothing to do with Medicaid expansion, which is permitted under the ACA and is on the ballot in 4 states this fall.

But there may be unintended consequences.

"The guidance says that a state can divert premium tax credit money to serve people with incomes below poverty. If that shifts people out of Medicaid, the savings is credited to the state," said Dorn. "The purpose may be to discourage Medicaid expansion, but the effect is to take federal money away from low-wage, working families and middle-class families."

Section 1332 waivers would still have to cover the same number of people as without a waiver, said Larry Levitt, senior vice president for health reform at the Henry J. Kaiser Family Foundation; the difference now is that the association health plans and short-term plans count towards coverage.

"This guidance would give states much greater flexibility to bring plans to the market that don’t cover the ACA’s essential benefits. There would still need to be options that do cover those benefits, but states could create a parallel market of more limited plans," said Levitt, in an email to AJMC^®. "And importantly, premium subsidies could be used in those more limited plans."

"This guidance goes quite far in letting states get around the ACA structure, if they choose to do so. I’d expect states to get quite creative," he said.

Eight states so far have received innovation waivers from CMS.

While CMS and Treasury said the change is effective immediately, a CMS spokesman said it will not have any effect on the 2019 plan year, since rates are already set. Earlier this month, CMS said its changes have helped affect premiums for 2019 silver plans.

Last year, when efforts to repeal the ACA failed in Congress, President Trump ended the ACA's individual mandate tax penalty in his tax reform legislation. That change takes effect next year.

“President Trump has already opened up more affordable, flexible options for Americans in the individual health insurance market, while also bringing new stability to the Exchange,” said HHS Secretary Alex Azar in a statement. “Now, states will have a clearer sense of how they can take the lead on making available more insurance options, within the bounds of the Affordable Care Act, that are fiscally sustainable, private sector-driven, and consumer-friendly.”

One of the Senate's top Democrats criticized the decision.

“After spending weeks pretending to support pre-existing condition protections, Trump and Republicans are showing their true colors,” said Senate Finance Committee Ranking Member Ron Wyden, D-Oregon, in a statement.