Health Advisor Describes 1332 Waiver Options To Legislative Task Force

Section 1332 of the Affordable Care Act offers Arkansas a “bounded opportunity … not unlimited opportunity” to change how the act applies in the state – potentially even ending the mandate for individuals to buy health insurance. But Arkansas would have to persuade the federal Department of Health and Human Services and the Department of the Treasury to agree to waivers allowing those changes, and no state has even tried to do that yet.

That was the message to legislators Thursday from Dr. Lanhee Chan, a research fellow at Stanford’s Hoover Institution who was the chief health advisor for Mitt Romney’s 2012 presidential campaign. Chan said he also was once a college roommate of U.S. Sen Tom Cotton.

Chan spoke to the Health Reform Legislative Task Force, the group of legislators considering changes to health care in Arkansas as part of a legislative deal to continue funding the Medicaid private option through the end of 2016. He later spoke at UAMS.

Section 1332 potentially offers states broad latitude to remake health care within their boundaries when the five-year waivers take effect as early as Jan. 1, 2017, Chan said. Controversial sections of the Affordable Care Act, otherwise known as Obamacare, potentially could be waived, including the mandate that larger employers provide insurance, and the mandate that individuals buy insurance.

Potentially, states could fund their own health care reform through the federal dollars and tax credits that now subsidize individual and business coverage. The waivers would permit states to alter their marketplace exchanges, which serve individuals buying their own insurance and small businesses, or even opt out of the exchanges completely.

“My own view is that 1332 has the potential to be a significant step forward for those seeking market-based health care reform,” he said. “The challenge of course, as with any waiver, is that the negotiation process has two parties. It has the state, and it has the presidential administration.”

As part of a “super waiver,” other federal health care programs such as Medicare could be altered, which Chan said “is the first time as far as I know that Congress has allowed a state to tinker in such a specific way with Medicare.”

However, any changes must meet four criteria.

• They must provide coverage of essential health benefits across 10 categories that is at least as comprehensive as that defined in another section of the law. What that means is unclear, Chan said, though he guessed it would involve an “actuarial equivalence.”
• Out-of-pocket expenses for individuals must be no higher.
• Coverage must be provided to a comparable number of people as otherwise would be done through the Affordable Care Act.
• The changes must not increase the federal deficit over a 10-year period.

Also, certain aspects of the Affordable Care Act could not be waived, such as the requirement that insurance companies accept customers regardless of pre-existing conditions.

Any waivers must be approved by the federal Department of Health and Human Services and the Department of the Treasury, which includes the IRS. Chan said residents of a state with a waiver would not be subject to an IRS penalty.

Chan said Section 1332 is vague, without much current regulatory guidance and not much more coming from the administration.

“That’s both an opportunity as well as a hindrance, quite frankly,” he said. “It’s an opportunity because it allows states to do all sorts of interesting and creative things. It’s a hindrance because it gives the administration many more reasons to say no.”

Chan said that if states want to apply for a waiver, they should start the process soon. No state has yet filed a waiver request. Other states are considering reallocating funding between different parts of the health care system so beneficiaries could be migrated from one program to another. One state is considering replacing its government exchange with one or more private exchanges. Some states are considering more consumer-directed plans such as catastrophic plans coupled with health savings accounts. Some are considering offering “premium assistance” to people in employer-sponsored plans.

The session lasted about 80 minutes. Sen. Jason Rapert, R-Conway, told Chan, “It’s very apparent in the questioning that’s going on back and forth here, I think members are beginning to understand that, yes, what was not possible under the (Affordable Care Act) and would cause problems for any state, especially with penalties and things of that nature, are possible to have a waiver from with a 1332 in 2017.”

Asked by Rapert if Arkansas enjoys any advantages because of its implementation of the private option, Chan said the biggest is that it has already gone through the waiver process.

But Sen. Terry Rice, R-Waldron, expressed more doubts. He wondered if the federal government might fail to hold up its end of the bargain if a waiver were approved. When Chan said that would be “unprecedented,” Rice replied, “I appreciate that thought, but I’m one that (feels) like we’ve seen some unprecedented things.”

Sen. Jim Hendren, R-Sulphur Springs, the committee’s co-chair, said legislators will consider a number of mechanisms for health care reform, including the 1332 waiver. Asked by Sen. Linda Chesterfield, D-Little Rock, what other ones exist, Chan said, “If the goal is to pursue broader system reform, I can’t think of other mechanisms aside from a 1332 that enable doing that on the timeline that you’re considering.”