Section 1332 State Innovation Waivers: Current Status and Potential Changes

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Section 1332 of the Affordable Care Act (ACA) authorizes states to waive key requirements under the law in order to experiment with different health coverage models. As Republicans in Congress debate repeal and replacement of the ACA, renewed attention is being paid to these waivers as a mechanism for giving states flexibility to restructure their health care markets. The waiver authority is generally broad, though certain process and outcome standards must be satisfied. State interest in 1332 waivers to date has been limited; however, changes to the statutory waiver requirements included in the Senate Better Care Reconciliation Act of 2017 (BCRA) or other signals from the Trump administration could spark increased state action. This brief describes current 1332 waiver activity and raises questions regarding the future of these waivers, particularly in the context of proposed changes under discussion.

What Does Section 1332 Allow?

Beginning in 2017, states can request 5-year waivers of certain ACA provisions through Section 1332. States may seeks waivers of requirements related to the essential health benefits (EHBs) and metal tiers of coverage (bronze, silver, gold, and platinum) along with the associated limits on cost sharing for covered benefits. They may alter the premium tax credits and cost-sharing reductions, including requesting an aggregate payment of what residents would otherwise have received in premium tax credits and cost-sharing reductions. States may also modify or replace the marketplaces and change or eliminate the individual and/or employer mandates (See Appendix A for more detail on these provisions).

The ACA includes guardrails limiting how 1332 waivers can be used by states. The current statutory language requires that state waiver applications must demonstrate that the innovation plan will:

  • Provide coverage that is at least as comprehensive in covered benefits;
  • Provide coverage that is at least as affordable (taking into account premiums and excessive cost sharing);
  • Provide coverage to at least a comparable number of state residents; and
  • Not increase the federal deficit.

Additionally, while states can submit ACA innovation waivers in conjunction with Medicaid waivers (under Sec. 1115 of the Social Security Act), innovation waivers cannot be used to change Medicaid program requirements.

In 2012, the Department of Health and Human Services (HHS) issued final regulations outlining the procedures for state innovation waiver applications. In 2015, HHS and the Treasury Department issued guidance on how they would interpret the law’s requirements for waivers to provide for comparable coverage, comprehensiveness, affordability, and budget neutrality. Unlike regulations and statutes, guidance is not legally-binding, and therefore, can be more easily changed by subsequent administrations.1 On his first day in office, President Trump issued an executive order suggesting that states would be given increased flexibility with regard to ACA implementation.

The 2015 guidance offered a fairly strict interpretation of the statutory guardrails for 1332 waivers. It emphasized the need to protect access to care and affordability for vulnerable populations, including the poor, the elderly, and those with high health needs and risks, noting that impacts on these populations would be considered in assessing whether any waiver met the statutory guidelines. The guidance also specified that coverage and affordability would be measured annually as well as over the life of the waiver and that comprehensiveness of coverage would evaluate coverage under all ten essential health benefit (EHB) categories and under any one EHB category. In calculating deficit neutrality, states cannot use savings from a separate 1115 waiver to offset spending under a 1332 waiver, and any changes in the cost of Medicaid that might result from a waiver would also be measured. Finally, with respect to waiver administration, the guidance noted that to the extent waiver programs envision new methods for determining eligibility for or delivering subsidies, states would need to build their own systems and could not rely on IRS or HHS to customize operations of or the federal tax system to accommodate individual state programs.

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