Ask KFF: Karen Pollitz Answers 3 Questions on Trump Administration’s New ACA Waiver Guidelines

On Thursday, the Trump administration announced a change to the state innovation waiver under the Affordable Care Act, previously known as Section 1332. Renamed the “State Relief and Empowerment Waiver,” the new guidelines would, among other things, allow states to ask for permission to change how they apply federal subsidies to state insurance marketplaces, including for alternative health plans that do not comply with the ACA coverage requirements.

Karen Pollitz, KFF’s senior fellow on health reform and private insurance, answers three questions from Chelsea Rice, KFF’s digital strategist, on the legal authority for this change and its implications for consumers and state marketplaces in our new “Ask KFF” feature.

1. First of all, does the Centers for Medicare and Medicaid Services (CMS) have the authority to change this element of the Affordable Care Act without going through Congress?

Pollitz: Certainly CMS has the authority to implement the waiver provisions of the ACA, and they have the authority to interpret what the law’s requirements are. I think it remains to be seen whether there will be legal challenges to the Trump administration’s interpretation, since this guidance certainly pushes the boundaries of what kinds of waivers the law allows.

2. How would this affect consumers in the states that apply for these waivers?

Pollitz: This new announcement provides a path for states to restructure the ACA’s subsidies in significant ways, which could have the effect of destabilizing marketplaces and potentially make it harder for people with pre-existing conditions to get affordable coverage.

By law, states are supposed to have flexibility to try new and different things, but in order for an innovation waiver to be approved, coverage has to be at least as affordable and at least as comprehensive for at least as many residents as it would have been before, and it can’t end up costing the federal government more.

The Obama administration made clear that they would evaluate waiver proposals based not only on how they would affect the total population, but also with respect to vulnerable subgroups, including people with low incomes or pre-existing conditions.  Under this new guidance, the most vulnerable residents could be disadvantaged as long as, in the aggregate, at least as many people have coverage.   The Trump administration also re-interpreted what counts as affordable and what counts as comprehensive.  Instead of evaluating the affordability and comprehensiveness of coverage that people actually get under the waiver, HHS will evaluate whether comparably affordable and comprehensive coverage continues to be offered, even if fewer people sign up for it.

What the states ask for will determine the scope of impact on consumers. First of all, the Trump administration said that states can apply for waivers to redistribute federal subsidy dollars. Under the ACA, eligibility for subsidies is the same regardless of age. But states could now make younger people eligible for bigger subsidies and — because it has to be budget neutral – reduce subsidies for older people. CMS also suggested that states could redistribute subsidy dollars based on income — which could allow for subsidies up to 500% of the poverty level or more, but that would require thinning out subsidies for people at lower income levels to stretch the same subsidy pot to be budget neutral.

States could also redistribute the same pool of dollars to subsidize some non ACA-compliant plans, like short term health plans, which are roughly half the cost of ACA-compliant policies. But they offer much less protection and deny coverage to people with pre-existing conditions. The administration is clearly signaling with these additions that even if states redistribute the strength and affordability of the coverage so that some of the most vulnerable people are disadvantaged, they would entertain the waivers that cover the same number of people.

3. CMS says in their announcement that this initiative will “strengthen health insurance markets.” How might the individual insurance market change in the states that choose to apply for this updated innovation waiver?

Pollitz: We’ll have to see what states do. For example, the new guidance makes clear that states can continue to pursue waivers to establish reinsurance programs to stabilize marketplace premiums, as seven states have done already.  In addition, though, states could pursue new actions that could very well de-stabilize the ACA marketplaces.  Waivers under these guidelines might also make it possible for insurers to sell more non-ACA-compliant policies to more people at lower premiums, but those policies would not reliably protect people when they get really sick and need coverage.