Oct 22, 2018

New State Relief and Empowerment Waiver Guidance Gives States Tools to Help Fix Broken Health Insurance Markets

Seema Verma
Administrator, Centers for Medicare & Medicaid Services

I accepted this job as Administrator of the Centers for Medicare and Medicaid Services (CMS) with a clear vision from President Trump: make health insurance more affordable and accessible by expanding choice, reviving competition, and deregulating and devolving to the states the authority and flexibility to reform their health insurance markets. After the Affordable Care Act’s (ACA) regulations took effect, we have witnessed a serious deterioration of the individual market across the country because of skyrocketing costs and the withdrawal of insurance plans. Today we are taking a major step toward empowering states to address the problems caused by the ACA by issuing new guidance giving them broader flexibility to waive ACA regulations through State Relief and Empowerment Waivers.

Let’s first understand the scope of the problem. 28.5 million Americans remain without health insurance. We know many of these individuals make too much to receive subsidized care, don’t have access to employer-sponsored health insurance, and remain uninsured because the individual health insurance market has failed them. In many cases, they face a stunning choice: pay the equivalent of a second mortgage for health insurance, or roll the dice hoping a health catastrophe doesn’t strike while they live without the protection of health insurance.

The severe deterioration of the nation’s individual health insurance markets has been a train wreck in slow motion.  As the ACA regulations took effect, choice plummeted and premiums soared.  Today, over half of the counties in America have only one insurer selling in the individual market.  The insurers that stayed in the market raised premiums, more than doubling the average premiums in states using HealthCare.gov between 2013 and 2017.  Premiums jumped by far more in many states over that time, rising by 190 percent in Arizona and by a jaw dropping 223 percent in Alabama.

While CMS recently reported positive news—average premiums for a benchmark plan on HealthCare.gov will drop by 1.5 percent in 2019 and more insurers will enter the market—premiums are still far too high.

Unfortunately, ever since the main regulations authorized by the ACA were set in motion in 2014, states have been fighting a losing battle to maintain competitive individual health insurance markets offering abundant consumer choice and affordable options.  The fact is, due to the ACA, states have largely lost the power to advance and adopt their own solutions.  Instead, the ACA imposed a one-size-fits-all set of federal regulations that put a straightjacket on state innovation. 

To the extent the law allows states to innovate, guidance previously issued by CMS and the U.S. Department of the Treasury (collectively, the Departments) in 2015 put unnecessary restrictions on a state’s ability to waive certain federal regulations and adopt new approaches to address the problems the ACA created.  Before I came to CMS, I worked directly with states to develop waivers and found federal guidance far too restrictive to accomplish any substantial change.  Innovative ideas were impossible to develop under this guidance. 

Here’s the problem we’re facing.  When health insurance premiums get too high, healthier people tend to leave the market to a greater degree.  Their departure leaves sicker people behind, which then raises the costs even further for those who remain insured.  Eventually, if rising costs prompt enough healthy people to leave the market, insurance becomes unaffordable for everyone.  This is what insurance actuaries call a death spiral.

States across the country are actually seeing this happen within the unsubsidized portion of the health insurance market.  The ACA’s costly premium tax credits will keep a large number of people in the individual market and prevent the market from falling into a full death spiral.  But in 2017, when average premiums rose by 21 percent, the unsubsidized portion of the market declined by 20 percent.  Six states lost over 40 percent of the unsubsidized market that year and 2018 enrollment data suggest this downward spiral may be accelerating. 

Under these deteriorating market conditions, it is no wonder that governors across the country have been asking for broader flexibility to waive federal regulation through waivers.

To help solve the problem of the broken individual marketplace, today, I’m pleased to announce that the Departments are replacing this prior guidance with new guidance that gives states a real measure of flexibility to innovate better ways to provide Americans with more affordable, higher quality health care.   

Section 1332 of the ACA allows states to apply to waive certain federal requirements.  These waivers empower states to develop new healthcare programs and solutions as an alternative to the ACA’s otherwise one-size-fits-all approach.  In other words, these waivers will allow states to get out from under the onerous rules imposed by the ACA.

However, with the prior administration’s overly and unnecessarily restrictive guidance in place, very few states have come forward with innovative new strategies for improving their health care markets.  To date, we have approved only eight waivers.  All but one of these waivers has been a reinsurance waiver.  While these reinsurance waivers show the inefficiencies of the ACA’s tax credit structure and have given states an important tool to reduce premiums, they barely touch the surface of what may be possible to achieve through a waiver. 

The new guidance issued today will finally give states the flexibility the law intended.  Today, we’re also renaming these Waivers State Relief and Empowerment Waivers to reflect this new direction and the new flexibility for states to overhaul the ACA.

As we evaluate future waivers, the Departments will consider how well each waiver supports five principals for a high performing health care system.  Moving forward, state waivers should aim to: 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.

To receive a waiver, the law requires a state to meet certain “guardrails.”  Specifically, a waiver must provide coverage that is at least as comprehensive and affordable to a comparable number of people as without the waiver.  In addition, a waiver must not increase the federal deficit.  The prior guidance applied these guardrails very restrictively by requiring a state to show that people would take up the same level of coverage.  This requirement was also applied to specific populations.

The new guidance implements an access standard requiring states to provide access to the same level of coverage.  Thus, if someone freely opts for coverage with a lower premium, the guardrails remain satisfied even though the chosen coverage might be less comprehensive.  In addition, the Departments will judge a waiver for how it impacts the population as whole, which will free states from the impractical, virtually unattainable standards on covering specific populations the previous guidance required. 

To help ensure the same number of people remain insured, the new guidance continues to require that a comparable number of people remain covered, but the guidance broadens the definition of coverage to include more types of coverage, such as more affordable, short-term plans.

In practical terms, this new guidance will open up a number of new opportunities.  For instance, states can now consider options to create and implement a new subsidy structure that changes the distribution of subsidy funds compared to the current federal Premium Tax Credit (PTC) structure.  A state may design a subsidy structure that meets the unique needs of its population in order to provide more affordable healthcare options for a wider range of individuals and address structural issues that create perverse incentives, such as the “subsidy cliff.”

By taking advantage of these opportunities, states can chart a new course toward more affordable health insurance choices in the individual market.  More affordable health insurance is, of course, more accessible health insurance, which should help drive down the number of people that continue to go uninsured.

Moving forward, to help states take better advantage of these opportunities, CMS is preparing to publish a series of Waiver Concepts in an effort to spur conversation and innovation with states.  These Waiver Concepts aim to serve as a springboard for innovative ideas for states to improve their health care markets and to meet the unique needs of their citizens.

To be clear, nothing in this new guidance reduces protections for people with pre-existing conditions.  This Administration remains firmly committed to maintaining protections for all Americans with pre-existing conditions.

Though this guidance opens up exciting new possibilities for states to pursue, federal law still imposes limits on what states can accomplish.  Not all federal requirements can be waived and, despite a more flexible application of the guardrails, they still pose limits. To give states a complete set of tools to address the failures of the ACA, Congress will need to act.