What Is a 1332 Waiver?

A 1332 waiver is a provision of the Affordable Care Act (ACA) that allows a state to take an innovative approach to healthcare reform. States were able to start using these waivers as of 2017.

As of mid-2020, a total of 23 states have submitted 1332 waiver proposals to the federal government for consideration; 15 have been approved and the rest are either still under review or have been withdrawn.

In most cases, states are using 1332 waivers to implement reinsurance programs, but the waivers can be used for more extensive changes as long as states follow various consumer protection guidelines. Given that two very different administrations have overseen 1332 waivers thus far, the regulations governing these waivers have evolved over time.

The Affordable Care Act brought sweeping changes to the American healthcare and health insurance systems. The rules apply nationwide, but there's some latitude for states to implement their own requirements, such as picking the benchmark plan that sets the requirements for essential health benefits for individual and small group health insurance plans.

A 1332 waiver allows a state to implement various creative and unique approaches, but the waiver has to be approved by the federal government before it can be implemented.

General Parameters for 1332 Waivers

The name is drawn from Section 1332 of the ACA (codified at 42 U.S. Code § 18052), which outlines how 1332 waivers work. The law grants broad authority for 1332 waiver requirements to the Secretary of the Department of Health and Human Services (HHS), but does include some basic requirements, known as guardrails, that a state's 1332 waiver proposal must meet in order to be approved by HHS.

The idea is to ensure that whatever changes the state makes will result in consumers being at least as well protected as they would have been without the state's 1332 waiver, and to avoid increased costs for the federal government. In order to gain approval, a 1332 waiver must be designed to provide:

• Health insurance coverage that's at least as comprehensive as the coverage people receive under the ACA's regular rules.
• Health insurance coverage that's at least as affordable as the coverage people receive under the ACA's regular rules.
• Health insurance coverage for at least as many people as would be covered under the ACA's regular rules.
• No increase in the federal deficit.

Within those parameters, there are a variety of changes that states can make, although they are not allowed to remove the ACA's requirement that health plans be guaranteed-issue and provide coverage for pre-existing conditions.

Obama Administration Regulations

In 2015, under the Obama administration, HHS finalized guidance to clarify exactly what would be required in order for a state to comply with each of those four provisions in its waiver proposal.

The HHS rules clarified that "coverage" meant minimum essential coverage, which does not include things like short-term health plans, healthcare sharing ministry plans, limited benefit plans, fixed indemnity plans, etc. (it does, however, include off-exchange plans, which are ACA-compliant major medical plans that are sold outside the health insurance exchanges).

And to account for the fact that some "skinny" employer-sponsored plans do count as minimum essential coverage but do not provide minimum value, the rules noted that a 1332 waiver proposal could only be approved if it would not reduce the number of people with coverage that has an actuarial value of at least 60% (i.e., where the health plan covers at least 60% of overall medical costs for a standard population).

The rules also clarified that a state's 1332 waiver proposal could only be approved if it would not reduce the number of people with coverage comparable to the state's benchmark plan for essential health benefits.

So under the rules that HHS finalized in 2015, a state's 1332 waiver could only be approved if it would not result in a decrease in the number of people with truly comprehensive health insurance coverage.

For the affordability metric, the 2015 regulations for 1332 waivers incorporated premiums and cost-sharing (deductibles, copays, and coinsurance), as well as "spending on healthcare services that are not covered by a plan...if they are affected by the [1332] waiver proposal." A waiver could not be approved if it would result in a reduction in overall affordability.

By combining cost-sharing (which is only incurred by people who have medical claims) as well as premiums when determining overall affordability, the HHS rules ensured that a state would not be able to use a 1332 waiver to create a system based around cheaper health coverage that provided less robust benefits if and when a person needed medical care.

The Obama administration's guidance on 1332 waivers also noted that when a state's waiver proposal was evaluated, HHS would be looking not just at the overall impact on all state residents, but also at the impact on vulnerable populations, including low-income residents, elderly residents, and residents with serious health conditions.

A waiver proposal that would substantially harm vulnerable populations could not gain approval, even if the impact on the overall population would be neutral or beneficial.

Trump Administration Revisions

In 2018, HHS—now under the Trump administration—issued new guidance for 1332 waivers. The new rules refer to 1332 waivers as "State Relief and Empowerment Waivers" and relax several of the requirements that the prior administration had put in place.

Under the 2018 rule, "coverage" is redefined to include plans that the Obama administration did not consider adequate, including short-term health plans and association health plans.

The 2018 rule specifically notes that under the revised rule, 1332 waivers "could potentially be used to allow states to build on additional opportunities for more flexible and affordable coverage that the Administration opened through expanded options for Association Health Plans and short-term, limited-duration insurance."

The Trump administration had previously issued guidance to make both types of coverage more available and easier to use as a substitute for regular major medical health coverage.

So under the 2018 rule, a state's waiver proposal could be approved even if it would result in an increase in the number of people covered by short-term health plans and a decrease in the number of people covered by comprehensive major medical plans, as long as the total number of people with any type of health coverage wouldn't decrease.

The 2018 rule also shifted away from looking at how many people would actually have affordable, comprehensive coverage and instead allows a waiver proposal to be evaluated based on the availability of affordable, comprehensive coverage—even if some residents transition to less affordable and/or less comprehensive coverage under the waiver.

The 2015 rules had specified that a state's waiver proposal could only be approved if it would not make coverage less affordable and would not reduce the number of people with minimum essential coverage (that also provided minimum value).

But the 2018 rule states that this was an overly restrictive requirement and would prevent states from increasing the number of residents with less expensive—but also less comprehensive—coverage.

As long as the comprehensive plans remain available to residents, and as long as those plans would continue to keep total healthcare spending at the same level it would have been without the waiver, a state can opt to also make less comprehensive and/or less affordable coverage available as an alternative, despite the fact that some residents will transition to those plans.

The 2018 rule removes the requirement that a 1332 waiver proposal be evaluated in terms of its effects on vulnerable populations. Instead, it calls for HHS to only evaluate the impact on the total population.

And although the Obama administration's rules had required a 1332 waiver to comply with the four guardrail rules during each year it was in place, the Trump administration relaxed this rule as well.

As long as a waiver proposal is expected to comply with the (relaxed) guardrails over the course of its life (generally five years), it can be approved even if it's expected to temporarily run afoul of one or more of the guardrails.

The 2018 rule changes also make it easier for a state to get a 1332 waiver proposal off the ground in the first place. Under the ACA, states have to enact legislation to authorize and implement a 1332 waiver, but the 2018 rule also allows states to use existing legislation combined with a state regulation or executive order.

Under both versions of the HHS regulations, a state's 1332 waiver proposal can only be approved if it will not increase the federal deficit. States are free to add their own funding in order to enhance health benefits or affordability, but the federal government cannot be expected to spend more in the state than they would have without the waiver.

Soon after the new guidelines were finalized, the Centers for Medicare and Medicaid Services (CMS) published an overview of 1332 waiver concepts for states to consider, outlining how states might use the new waiver flexibility to implement innovative changes for their health insurance markets.

Idaho

But although the Trump administration significantly relaxed the requirements for 1332 waiver proposals to gain approval, they preemptively rejected a proposal submitted by Idaho in 2019.

CMS explained that Idaho's proposed plan—which would have involved allowing non-ACA-compliant plans to be sold in the state—likely would not have complied with the 1332 waiver guardrails, especially the deficit neutrality rule.

Idaho stopped pursuing a 1332 waiver at that point, and instead introduced "enhanced" short-term health insurance plans, which have been for sale in the state since late 2019.

How Are States Using 1332 Waivers?

As of 2020, there are 12 states that have implemented reinsurance programs using 1332 waivers, and two more—Pennsylvania and New Hampshire—have received federal approval for 1332 waivers that will create reinsurance programs as of 2021. In addition, Hawaii has an active 1332 waiver that allows the state to avoid having an ACA-created small business health insurance exchange.

1332 waivers cannot increase the federal deficit. But if a state's 1332 waiver results in the federal government spending less money in that state, the state can recoup the savings and use the money to fund the healthcare program it's implementing.

Reinsurance

Reinsurance is a good example. Because reinsurance reduces individual market health insurance premiums, the premium subsidies (paid by the federal government) in that state get smaller too.

Instead of having the federal government keep the savings, the state gets the money in what's known as pass-through funding. The state then uses that funding, together with its own revenue, to pay for the reinsurance program.

CMS publishes the amount of pass-through funding that each state is receiving for its reinsurance program. Hawaii is also receiving a small amount of pass-through funding under its 1332 waiver, although not as much as the states that implemented reinsurance programs).

Georgia

Georgia was the first state to propose a 1332 waiver based on the relaxed guidelines that CMS rolled out in 2018. The state's waiver proposal was submitted in late 2019, seeking permission to make some significant changes to Georgia's individual health insurance market.

The state modified its waiver proposal in 2020 to scale back some of the proposed changes, but it would still be a significant overhaul if and when it's approved by the federal government.

Georgia's proposed 1332 waiver calls for the state to transition away from HealthCare.gov (the federally-run health insurance exchange) and instead have applicants use web brokers and insurers' enrollment platforms.

Quite a few states run their own exchanges instead of relying on HealthCare.gov, but if Georgia's waiver is approved, it would be the only state that doesn't have an exchange platform at all.

Georgia's waiver proposal initially called for allowing premium subsidies (funded by the federal government under the ACA) to be used to offset the cost of plans that are not compliant with the ACA, but that portion of the proposal was scrapped in 2020.

Georgia plans to continue to have the federal government issue premium subsidies, and they will only be available for ACA-compliant qualified health plans (i.e., the type of plans that people can purchase in the exchange).

But under the guidelines and waiver concepts that CMS published in 2018, it would be possible for a state to receive approval for a 1332 waiver that involves the use of federal premium subsidies to offset the cost of non-ACA-compliant health insurance, including short-term health insurance plans.

Premium Subsidies Based on Age

It's also possible for states to use 1332 waivers to implement a system under which the ACA's premium subsidies could be restructured to be based on age rather than income, with larger subsidies for older enrollees.

Under the ACA, premiums can be up to three times higher for older enrollees, but subsidies are based on how a person's premium compares with their income relative to the poverty level. So an older person will receive a larger subsidy than a younger person in order to equalize their net premium, but only if their income is similar and does not exceed 400% of the poverty level.

Applications

Although most of the ACA took effect by 2014, 1332 waivers didn't become available to states until 2017. Some states, including Vermont, Iowa, and California, proposed unique 1332 waivers but later withdrew them.

In the first few years of 1332 waiver availability, reinsurance programs have been by far the most common use of these waivers. And although the specific parameters and pass-through funding amounts differ from one state to another, reinsurance is a fairly basic, uniform concept. As time goes by, however, we may start to see additional states taking a more unique approach to 1332 waivers.