T

he effort to repeal and replace the Affordable Care Act appears to be on life support, with no clear path to passage in both the House and Senate. But that doesn’t mean Republican efforts to transform the ACA are dead. The Trump administration, working with governors and state legislatures, could make dramatic state by state changes to Medicaid and the ACA marketplaces using waivers that are allowed by federal law.

Because waivers are enacted at the state level, they generally don’t garner the attention from the national press as federal health care bills in Congress. With less press and public scrutiny, reforms unpopular in Congress can still become policy. The Trump administration has already signaled its intention to push state health reform forward using waivers by sending letters to governors.

Two types of waivers — Section 1332 (known as “thirteen thirty-two”) and 1115 (“eleven fifteen”) — are of particular importance here.

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Section 1332 waivers

Section 1332 of the ACA, which went into effect on Jan. 1, 2017, lets states waive — meaning get around — several key provisions of the ACA, including the individual mandate (a penalty or fine for not buying health insurance), the employer mandate (all businesses with 50 or more full-time equivalent employees provide health insurance), the premium tax credit (to help lower the cost of health insurance), cost-sharing subsidies (to help lower the cost of care once insured), essential health benefits (benefits that all plans must cover) for ACA marketplace plans and other structures.

In short, Section 1332 waivers let states operate their health care systems as if major parts of the ACA do not exist. In a recent letter to governors, Tom Price, the new secretary of Health and Human Services, signaled the department’s eagerness to pursue Section 1332 waivers with states. In the letter, Price noted a promising proposal out of Alaska, which uses re-insurance (payments to insurers facing higher than expected costs) to lower premiums.

To get a Section 1332 waiver, a governor must gain authorization from his or her state legislature and approval from the Trump administration through executive branch agencies (HHS and, for some requests, the Treasury Department). Under the ACA, these agencies may approve a 1332 waiver request that shows that the state will cover just as many people as the ACA and with just as comprehensive coverage that is just as affordable — all without increasing the federal deficit. In other words, states must develop their own viable replacement plans.

Unlike federal legislation, which requires approval from Congress, evaluation of whether a state proposal passes muster lies solely in the executive branch. A state must show specific types of evidence to demonstrate the quality of its replacement plan, but most of the specifics are in regulation or guidance, which can be undone without action by the US Congress. Say, for example, that a state proposes to reduce premium tax credits and cost-sharing subsidies in order to use those funds for other purposes. Health policy experts might conclude that the number of people covered by health insurance in the state would decrease, violating one of the requirements for the waiver’s approval. But would the Trump administration agree?

There are a few checks on this process. States can’t waive the market protections of the ACA, such as the ban on excluding people for preexisting conditions. A governor can only request a Section 1332 waiver that has been authorized by his or her state legislature. States must engage in a transparent public process when requesting a waiver, including publicizing requests on state websites, holding hearings, and collecting comments.

In the process of designing ACA replacements, governors will face the same hard truths about how health insurance markets work — without some form of regulation, people will lose access to health care. Faced with these dynamics, governors eager for health reform may turn to smaller changes, such as tweaks to how small business exchanges are run.

They may also turn to Section 1115 waivers, which offer a way to change Medicaid.

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Section 1115 waivers

These give states the opportunity to waive a key part of federal health care law — in this case, federal Medicaid law. The changes made possible by Section 1115 waivers aren’t as dramatic as those contained in the AHCA — for example, states can’t use these waivers to fully restructure Medicaid under block grants or per capita caps, nor can the federal government use them to take away federal reimbursements for Medicaid expansion — but they are still significant.

Last year, Seema Verma, who later became administrator of the Centers for Medicare and Medicaid Services, advised several states to try to gain authorization using 1115 waivers to increase Medicaid premiums, lock people out of Medicaid for non-payment of premiums, and add Medicaid work requirements. The Obama administration rebuffed many of these requests, stating that they did not further Medicaid’s goals of promoting health care and access. The Trump administration, on the other hand, has signaled a willingness to new ideas with its recent letter to move forward on work requirements, increased premiums, and fewer transportation benefits.

To get a Section 1115 waiver approved, a state must show the secretary of HHS that its proposal meets the goals of the Medicaid program and federal budget requirements. Suppose a state requests that its Medicaid program include a work requirement. As long as HHS agrees that the proposal fits the scope of the waiver, meets Medicaid goals, and meets budget requirements, it can be approved.

As with Section 1332 waivers, there must be a transparent process for submitting them. Though state legislation isn’t required to submit an 1115 request, state legislatures can impose requirements on such submissions.

National implications of waivers

Section 1115 waivers have a long history, with at least one approved in almost every state in the country. They offer an example of how state-based reform using waivers can have far-reaching effects. The ACA, for example, was based in part on Massachusetts’s reforms implemented under an 1115 waiver. And limits on the number of months families can be on welfare (Temporary Assistance for Needy Families) didn’t start out as national policy, but instead grew out of an 1115 waiver in Iowa.

State policy sometimes leads to federal policy. With the Trump administration facing setbacks on its plans for federal health policy, help from willing state leadership could drive health policy change at the state level.

Although we tend to think of the true power in government as residing in Washington, D.C., the decision-makers to watch for health policy in the days ahead are governors, state legislatures, and state Medicaid agencies.

Rachel Gershon, JD, is an associate at the University of Massachusetts Medical School’s Center for Health Law and Economics who has written and presented extensively on the subject of health care waivers and has also worked to advise states on their waiver options. The views expressed here are those of the author and do not necessarily reflect those of UMass Medical School.

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