If Congress Won’t Salvage Reinsurance, State Waivers May Offer a Workaround

A bipartisan solution seems unlikely, and Minnesota’s and Oklahoma’s experiences may make states flinch at setting up their own programs.

Richard Mark Kirkner

Amid the crashing and burning of Graham–Cassidy and the abrupt end to Tom Price’s career as HHS secretary, shards of a bipartisan effort to stabilize the individual health insurance markets emerged. They focused mostly on resurrecting the ACA cost-reduction payments and giving states flexibility to come up with their own ideas, like reinsurance, for shoring up the troubled individual market.

Price pushed ACA waivers in a letter to governors before his resignation. But just as Mitch McConnell pulled Graham–Cassidy, Minnesota Gov. Mark Dayton, a Democrat, fired off a scathing letter to Price, expressing frustration at a “nightmarish” waiver application gantlet and accusing HHS of reneging on a promise to preserve funds for a Minnesota program that subsidizes insurance for low-income earners.

Two weeks later, on the very day Price quit, Oklahoma Health and Human Services Commissioner Terry Cline sent him and Treasury Secretary Steve Mnuchin a letter accusing HHS of foot-dragging, effectively forcing the state to pull its waiver application because the agency broke its promise to approve it before Oklahoma health plans had to file their 2018 rates.

Justin Giovannelli, an associate research professor at Georgetown University’s Center on Health Insurance Reforms (CHIR) who has researched reinsurance waivers, says these experiences could give other states pause about seeking ACA waivers. “The next couple of weeks will be telling,” says Giovannelli. “Until now, reinsurance waivers have appeared to hold promise for at least some states. It’s been a path that the Obama administration had encouraged and that the Trump administration, in its first few months, strongly encouraged.”

Justin Giovannelli

Trump officials seemed thumbs-up on 1332 waivers, says Justin Giovannelli of Georgetown University. But the approval process has gone awry.

Setting up reinsurance programs has become a popular motivation for states to seek waivers under Section 1332 of the ACA. Reinsurance typically helps insurers pay the claims of people with high medical expenses. As a result, costs get spread across the covered population, helping to stabilize premiums and other costs. Originally, the ACA included a reinsurance mechanism funded with a tax on individual and group insurance, but that program expired after 2016.

Hawaii and Alaska are the first two states to get 1332 waivers, the former for its small-business exchange, the latter for a reinsurance program. Oregon and Iowa have also applied for reinsurance waivers (with Iowa seeking waivers on three other regulatory mechanisms as well). Massachusetts has applied for waivers of cost-sharing reduction requirements and premium-stabilization funding. New Hampshire has a draft waiver for reinsurance. Eight other states have enacted legislation to seek waivers but haven’t applied yet, according to Giovannelli’s research.

Frustrated state officials

The waiver application process is neither easy nor fast. First, a state’s legislature must pass the waiver, and then the governor must sign on. The next step is to submit the proposal to HHS, a process so daunting that the department provides a checklist. Once HHS determines the waiver application is complete, the clock starts on a six-month review period. CMS has not released any additional guidance since releasing the checklist in May.

Changes that a state wants to make under a 1332 waiver must meet certain requirements, Giovannelli and Georgetown CHIR colleague Kevin Lucia noted in a recent Commonwealth Fund blog post. Notably, the same number of residents must have insurance coverage and the program can’t add to the federal deficit. It was the Obama administration’s position that 1332 waivers require “federal officials to consider both the overall impact of a waiver on state residents and any disparate effects a proposal may have on vulnerable populations, including those with low incomes, older Americans, and those with serious health issues,” wrote Giovannelli and Lucia.

Whether Price’s successor will use similar measures is anyone’s guess.

JoAnn Volk

State officials she’s talked to expressed frustration with the 1332 waiver process, says research professor JoAnn Volk.

JoAnn Volk, a research professor at Georgetown’s CHIR, has heard frustration from state officials who tried to navigate the 1332 process. “They wanted a more expedited process,” she says. “They were asking for greater flexibility around some of the timeframes—the 180 days it takes the feds to review, for example.”

Still, when Minnesota officials made a presentation to the National Association of Insurance Commissioners, Volk heard them publicly say that while it wasn’t an easy process, they felt like they got a lot of support from HHS in walking them through it.

But all that “Minnesota nice” turned angry when state officials got the word from HHS on September 22 that it had cleared all the 1332 waiver hurdles and would get $208 million in federal funds for its reinsurance program—but also lose $369 million for MinnesotaCare, the state-run heath insurance program for people who earn up to 200% of the federal poverty level.

“This reversal is contrary to all direction and assurances we received from Centers for Medicare and Medicaid Services and U.S. Department of Treasury staff while drafting Minnesota’s reinsurance legislation and our ensuing 1332 waiver application,” Dayton wrote Price. He accused Price of “creating an untenable situation” for the state.

In Oklahoma, Cline claims HHS indicated until September 25 it would approve the waiver but did an abrupt about-face, saying the approval would not come through “with no reason for the delay or timeframe for approval.” His letter adds, “Our state will continue to explore and develop 1332 waiver(s) for future considerations by your departments but request clear timeframes to navigate the federal waiver approval process.”

Fixing reinsurance

Days after Graham–Cassidy faded to black and the Republican promises of repealing the ACA once again went unfulfilled, Tennessee Republican Lamar Alexander, chair of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and ranking Democrat Patty Murray of Washington pledged to come up with a bipartisan fix. But a federal reinsurance program could be a tough sell. After his HELP committee held hearings in September, Alexander told Axios, “Reinsurance costs money. You’re talking about a reinsurance funded by $15 billion. I don’t think we’re likely to find 15 billion new dollars between now and the end of September.”

Alexander favors loosening the ACA waivers on state reinsurance programs instead.

For Democrats, reinsurance is not a make-or-break proposition. “I think it makes much more sense to do reinsurance once rather than 50 times,” Connecticut Democrat Chris Murphy told Axios, “but given the disputes we’ve had on health care over the course of the last eight months, that’s a relatively small one.”

Reinsurance has had a fair track record on lowering premiums. The American Academy of Actuaries estimates that the ACA’s $10 billion transitional reinsurance program helped reduce average premiums by 10% to 14% for the 2014 plan year, and its phase-out accounted for a 4% to 7% hike in premiums in 2017.

An Avalere Health analysis for AHIP found that $15 billion for reinsurance, along with other market stabilization moves like guaranteeing cost-sharing reduction payments and delaying the health insurance tax, could reduce average yearly individual premiums by 17%, from $8,000 to $6,637 and potentially increase enrollment in the individual market by 300,000. The catch is, those market-stabilization maneuvers would add another $21.8 billion to the deficit.

Says Avalere’s Elizabeth Carpenter, one of the authors of the report, “Providing direct funding for a reinsurance program rather than assessing a fee on health plans like in the ACA’s original reinsurance program would likely provide a simpler approach and better predictability for plans. Creating more certainty for plans could lead to greater marketplace stability and lower premium costs for consumers.”

Absent Congress salvaging reinsurance from the repeal-and-replace wreckage, it will be up to Price’s successor to chart its future course. Republicans seem intent on devolving tough decisions about health care coverage to the state level. Whoever takes over from Price could help make that happen by cleaning up a messy, opaque process for approving 1332 waivers.

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