In late November, the Trump administration’s Center for Medicare & Medicaid Services (CMS) provided new details (or “concepts”) to states on how they can use a provision of the Affordable Care Act (ACA), known as Section 1332. This guidance followed new regulatory guidance published in October by the Departments of Treasury and Health and Human Services.
Section 1332 allows states to ask the federal government for waivers from certain ACA provisions. The waivers permit states to modify key features of the ACA, including insurance market requirements, how subsidies are designed, and coverage benefits. However, the proposal must meet certain statutory “guardrails,” including that the modifications result in equally comprehensive and affordable coverage to the same number of people and impose no additional cost on the federal government.
Section 1332 was added to the ACA legislation in Congress to satisfy lawmakers and states who wanted to give states more flexibility to use the ACA as a platform for further reforms, potentially even a single-payer system. The relatively obscure provision was subsequently dubbed “state innovation on steroids” by one liberal expert for its potential to be a game changer. During the Obama administration, I and some other conservatives urged congressional Republicans to build on this powerful section to give red states a form of exit ramp from the ACA.
The White House Strategy
The Obama administration chose to slow-walk the rollout of Section 1332, by delaying guidance for states until the end of 2015. It also narrowly interpreted the ACA’s statutory language, such as rejecting a bipartisan call for greater budgeting flexibility under 1332. However, it did signal a willingness to consider some waivers, such as for experiments in reinsurance.
In 2017, the incoming Trump administration and Republican Congress sought to overturn or radically alter the ACA through legislation. But within its first few weeks, the administration also encouraged states to press forward with reinsurance waiver proposals based on high-risk pools. And with sweeping legislative action hitting a roadblock and only limited ACA changes making it through Congress, the administration has been turning increasingly to the strategy of expansively interpreting Section 1332, encouraging states to propose significant changes to the operation of the ACA.
With Section 1332 now the primary Trump administration tool for modifying the ACA, what will be the end game and eventual result? Will it be that the ACA, albeit with distinctly Republican features in many states, is stabilized and remains the law governing much of the US health system? Will 1332 drive valuable reforms of the ACA? Or will the Trump administration waiver strategy mean that in large parts of the country, the ACA will exist in name only?
Green Light for 4 Lanes
The November guidance—which replaces the Obama guidance of 2015—opens the door to significant changes to address what CMS describes as serious weaknesses in the ACA, which include a lack of benefit flexibility and consumer choice and high premiums in many markets. To address these problems, CMS indicates 4 particular types of waiver proposal that it would welcome:
- Waiver proposals that combine the ACA’s subsidies for exchange plan premiums with contributions from individuals and employers and allow these funds to be used for a variety of options beyond those currently available in the exchanges, including high-deductible plans.
- Waivers that redesign the eligibility rules and structure of ACA subsidies.
- Waivers that would allow ACA subsidies to be used to purchase non-ACA options, such as short-term “skinny” coverage plans and to leverage Medicaid coverage (provided the ACA coverage guardrail requirements are met). States are encouraged to propose waivers that would make non-ACA plans available through the exchanges.
- Waivers that establish “risk-stabilization” reinsurance systems.
Many states might hesitate to respond to the guidance, however. They could face several technical challenges in using the new flexibility, such as how to integrate non-ACA plans into an ACA exchange or how to satisfy the ACA’s coverage guardrails. Thus, it remains to be seen how many states will make full use of the guidance.
There are also limits on how far waivers can go. For instance, while the executive branch routinely fills in the details of statutes and can interpret statutes to a degree, it can only do so within the limits of a statute’s language. The Trump administration clearly intends to push the boundaries with this guidance as far as possible. There will no doubt be legal challenges to determine whether the waiver proposals it is encouraging go beyond the statutory boundaries of the ACA.
The very process the administration used to provide guidance may also raise legal objections. For instance, my Brookings colleague Christen Linke Young argues that the sweeping guidance has the character of a “legislative rule”—requiring formal notice and comment under the Administrative Procedure Act—rather than a more informal “interpretive rule.” If so, that could create a legal uncertainty for any waiver granted.
1332 as an Opportunity
If such challenges fail, however, making greater use of the ACA’s 1332 waiver authority could spawn a wide variety of subsidized and less expensive coverage options. These could provide more basic, affordable choices to families that find ACA plans to be too expensive. If states extend the boundaries of the ACA’s flexibility to redesign subsidies, there will also be more opportunity to find the right balance of subsidies and insurance arrangements that achieves adequate insurance that is affordable for households and for the nation.
CMS is pushing the envelope with this new guidance, and there are legitimate concerns about the Trump administration’s willingness to ensure that all granted waivers would guarantee adequacy of coverage. To reach the ACA’s overall goals, however, it is necessary to experiment and innovate. Section 1332 is a powerful engine of innovation through federalism, and CMS should give states the encouragement they need to find the best ways of meeting the ACA’s broad goals. But Section 1332 is also a valuable political safety valve—enabling states that want significant changes in the ACA to obtain them, without new laws altering the ACA for states that want to keep it as is.
About the author: Stuart M. Butler, PhD, is a senior fellow, Economic Studies, at the Brookings Institution in Washington, DC, where he focuses on health care and budget issues. Dr. Butler also serves on the board of trustees for the Convergence Center for Policy Resolution, and the board of Mary’s Center, a Federally Qualified Health Center. (Image: Paul Morigi/The Brookings Institution)
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