Door Opens (a Little) for Exchange Changes: CMS Releases Guidance on State Exchange Waivers

On December 11, 2015, the Centers for Medicare and Medicaid Services (CMS) released long-awaited guidance on “1332 waivers” by which a state can waive certain health insurance exchange requirements as early as January 1, 2017. The guidance sets guard rails for states that are seeking to better integrate their state’s exchange and Medicaid programs, reconsider small business employee coverage or otherwise tweak exchange rules to better meet market-specific needs.

The guidance outlines CMS’s intended framework for assessing state waiver applications against the four statutory requirements:

• Coverage — At least as many residents have minimum essential coverage as would absent the waiver,
• Affordability — Residents’ net out-of-pocket spending (including premiums, deductibles, etc.) is less than it would be without the waiver,
• Comprehensiveness — At least as many residents have coverage that satisfies a state’s essential health benefit (EHB) requirements as would absent the waiver, and
• Deficit Neutrality — The waiver does not increase the federal deficit.

Although state waivers may be approved for a period of up to five years, CMS expects that each requirement will be met in each year that the waiver is in effect. The agency will assess the impact of the requirements on all state residents, regardless of the type of coverage. CMS also intends to assess a waiver application holding the state’s Medicaid and CHIP policies constant. In other words, a state planning to submit a waiver application that relies on efficiencies gained by anticipated changes in its Medicaid policies is likely to be disappointed.

CMS also signaled its concern for a state’s vulnerable residents, noting that a waiver application will fail if it reduces coverage, affordability or comprehensiveness of coverage for low-income individuals, elderly individuals and those with or at risk of developing serious health issues.

Not all of the guardrails established in the guidance are ground in statutory or policy concerns. The guidance notes that in the roughly 40 states where the federal government’s healthcare.gov powers the exchange, waiver requests will be denied if they require functionality beyond the federal system. In other words, CMS will not approve a particular state’s otherwise permissible request if the waiver requires state-specific customization.

In the short run, states may find it difficult to craft proposals that concurrently meet all of the CMS guardrails. But new “personal responsibility” flexibilities in Medicaid, and high member attrition and insurer losses in the exchanges, create fertile ground for new ideas. Even if few states submit waivers initially, the promise of section 1332 may force re-examination as health care reform discussions continue between policy-makers, insurers and providers.