State Waivers May Open Door to More Cost Shifting 

Under ACA Section 1332, the Department of Health and Human Services (HHS) can grant state innovation waivers of certain ACA requirements, provided individual coverage would not become less affordable or comprehensive and the number of uninsured would not increase.

 The Senate proposal would make it easier to obtain these waivers, in part by requiring automatic HHS approval if the alternative state plan will increase access to comprehensive coverage, reduce average premiums, and increase enrollment. HHS could deny a waiver application only if data show the state's alternative program would increase the federal deficit. The waiver would be good for eight years — an increase from the ACA's five-year period. The Senate bill would also eliminate the need for state legislation enacting the alternative program and instead allow the governor and insurance commissioner to certify the plan. To support states in the waiver application process, the Senate draft would provide $2 billion over the next two years.

The expansion of the state innovation waivers would make it easier for states to alter coverage requirements in the individual and small group market because these markets would no longer have to cover the ACA’s ten essential health benefits. As a result, we could see insurers excluding coverage for prescription drugs, maternity and other high cost services. Should these changes occur, employers would want to reconsider any early retiree medical strategies relying on coverage in the individual market. 

Also of concern is the indirect impact the waivers could have on employers. States submitting waivers would receive a pass through of the federal dollars that would otherwise provide federal support for the individual market (such as premium tax credits). But a decline in overall federal support for healthcare under the Senate bill and greater flexibility for states to regulate healthcare via a waiver may cause at least some states to seek additional funding sources, including new state taxes on employers. Medicaid cuts could similarly cause states to seek more tax revenue – including from employers. Over time employers could face a patchwork of new state healthcare taxes. A state waiver could, therefore, result in shifting costs to employers through new state taxes or fees. 

At this point the fate of the Senate bill is unclear and its provisions are going to be further amended.  It’s also unclear how many states would apply for waivers or how those doing so would restructure their individual markets. But employers will want to pay close attention to the draft regulations governing the waivers, if indeed this revised provision is signed into law.