Opportunities for States Under Section 1332 of the Affordable Care Act

Introduction

 

California has made great progress implementing the Affordable Care Act (ACA), with over 6 million people newly enrolled in either Medi-Cal or Covered California since December 2013. The ACA offers major opportunities for states to meet these goals with a §1332 waiver using different approaches. There may be bi-partisan interest in reviving and revising §1332 waivers in the wake of the failure of the Graham Kennedy bill to secure the votes needed to repeal the ACA.

The premise of Graham Kennedy was that states needed flexibility to design their own systems of coverage for their uninsured citizens. The §1332  waiver already allows states the ability to waive several requirements of the ACA in order to create new and innovative models to improve and expand health coverage. They are intended to allow state experimentation with different models leading towards universal coverage. There are five models states might use in building towards universal coverage: 1) single payer private provider systems like Canada,[1] 2) employer mandates like Germany, 3) individual mandates like Switzerland, 4) socialized medicine like Great Britain where the government owns the hospitals and employs the doctors, and 5) a hybrid system like the Affordable Care Act (Obamacare) which combines employer and individual mandates with tax subsidies for those who cannot afford coverage.

Depending on which path a state chose, the employer and individual mandates of the ACA could become superfluous.

To create a new coverage framework, a §1332 waiver would allow states to waive four major planks of the ACA:

  1. The individual mandate (shared responsibility) to have health coverage – a provision, which is much reviled, but may well be critical to a well functioning private insurance market.
  2. The employer mandate to offer coverage – a provision which is key to prevent large employers from dropping coverage and moving their employees or their dependents into the exchanges, but otherwise reaches few of the state’s uninsured
  3. The health benefit exchanges and the essential health benefits requirement – the exchanges are irrelevant if a state adopts a single payer system that dispenses with private insurance companies
  4. The premium and cost-sharing subsidies available through the Exchanges – these too could become irrelevant in a single payer system.[2]

Section 1332 by itself does not give sufficient flexibility to adopt a single payer system; it would need to be combined with a broad §1115 Medicare and Medicaid waiver and an ERISA waiver (a provision that does not now exist; Hawaii has the only one in existence).  The ACA requires that states’ §1332 programs would have to exceed or be comparable to the law’s standard coverage framework in four ways, so the challenge for a state is whether it can design reforms that exceed the following:

  1. The number of people covered through the ACA.
  2. The scope of health benefits
  3. Consumer affordability
  4. Containing the cost to the federal government.

In other words, a state’s §1332 waiver can cover more people, and/or more services at a lower cost to individuals and at an equal or lower cost to the federal government. The ACA sets the floor or the minimum that states can use a §1332 waiver to exceed. The §1332 waiver gives them flexibility. As contrasted with Graham Kennedy, §1332 waivers neither cut federal funding nor gave states nearly unlimited flexibility.    

States may not waive certain basic rights for every American – the insurance market reforms of the ACA, including its guaranteed issue requirement for all regardless of medical conditions and the prohibitions on increasing premiums for consumers with preexisting conditions. The lifetime and annual coverage limits, coverage of preventive care for all Americans and coverage of dependents up to age 26 may not be subject to a waiver as well.[3]

To maximize the scope of innovation and to more fully coordinate health coverage programs, States could submit a §1332 waiver in conjunction with a §1115 Medicaid waiver and/or a Medicare §1115 waiver to achieve more expansive reforms that involve those programs and their beneficiaries. The ACA explicitly raises this possibility and instructs the Secretary of Health and Human Services to design a coordinated multi-waiver submission process. This provision of the ACA is “a broad statutory invitation for states to consider many sorts of unprecedented changes to health care policy.”[4] A coordinated multi payer waiver approach might allow greater alignment of program eligibility and enrollment policies, and parallel value-based purchasing strategies across public and commercial payers.[5]

However under the Obama administration policies a state may not use its savings under a §1115 waiver to cross-subsidize its §1332 waiver; in essence aligned savings approaches are permitted and encouraged but not cross-program subsidies.[6] In my opinion, this guidance was inconsistent with the over-all purposes of §1332 to assist and promote broad scale state health reforms; hopefully the Trump Administration will recognize the opportunity for cost and savings trade-offs between and among §1332 and §1115 Medicaid and Medicare waivers.

States may need additional federal guidance about the specific limits of §1332 waivers, and what reforms would require other waivers. For example, while §1332 extends waiver authority to expand essential health benefits within exchanges, some observers do not believe that authority extends to plans outside of that marketplace.[7] Similarly, federal guidance will be necessary regarding the methods for determining whether or not states meet the comparability requirements regarding the number of people covered, the comprehensiveness of benefits, consumer affordability, and impact on the federal budget. Is the Affordable Care Act a floor or a ceiling? Exactly how far can pioneer states go? For example, is the standard whether the waiver further decreases the numbers of uninsured Californians (or Texans) or whether it increases coverage under the Affordable Care Act programs? In other words, could we use a waiver to grow the numbers of persons with employment-based coverage? Can we use employer mandates to achieve that? Can we use a hybrid of public private (employer/employee/ACA) financing? Can we build towards an individual choice system that moves away from employment-based coverage? Can we use a Basic Health Plan or offer a Medicaid or Medicare buy in in lieu of subsidies in the private individual insurance market?

Under the Obama Administration, §1332 waivers required the passage of state legislation authorizing their reforms in advance of their submission to the federal Departments of Health and Human Services and the Treasury. This avoided the unseemly process that occurred with some state’s §1115 waivers, where the state secured the waiver then chose never to implement it – a waste of valuable time for all involved. The Trump Administration may wish to give states greater flexibility in submitting waivers and adopting legislation, but it should not encourage or permit a waste time and effort on proposals that will not be implemented at the state level.

Under the ACA, California made major strides to expand and improve health coverage for millions of Californians, but it has not yet coordinated payment and delivery system reforms. This leaves plans and provider networks with mixed and incoherent signals about cost effectiveness and quality. The State might now want to use a §1332 waiver to align and delivery system reforms, by better aligning provider and plan payment and delivery system reforms in the Exchange plans with the plans for Medi-Cal, Medicare and private employment-based insurance.

The Supreme Court made the Medicaid expansion optional with the states. Texas, Florida and many Southern states did not adopt the Medicaid expansion. Thirty-one states adopted it and 19 have not yet done so. We are now left with the checkerboard coverage of Louisiana, Arkansas, Kentucky and West Virginia making huge advances in covering their uninsured by adopting the Medicaid expansion, while their neighboring states of Texas, Mississippi, Georgia, Alabama and Tennessee have not done so and are plagued by continuing high rates of uninsured citizens, particularly among their neediest and lowest income working populations who can least afford coverage. They could use a §1332 waiver to design their own state-specific solutions to coverage for every citizen. They might prefer to use a Basic Health Plan model or Hoosier Care or Badger Care or the old TennCare model or the California Healthy Families model, rather than the Medicaid expansion to get less expensive care and coverage. They might want to try a Medicaid buy-in or a Medicare buy-in rather than the individual market for their disabled citizens with pre-existing conditions.  They may want to test out tightly controlled managed care plans or narrow and cost effective delivery networks for the newly insured to better control costs. They may prefer some of the changes negotiated by Indiana or Kentucky or Arkansas with the federal government. They may want to fund reinsurance for catastrophic cases in the individual market and consequent reductions in individual market premiums as Alaska has done.[8] This will produce significant savings for consumers and the federal government and can be reinvested.

The ACA was largely built around the patchwork of health coverage programs that already exist –primarily Medicaid and individual private insurance. As a consequence, the landscape became somewhat more confusing for many consumers and providers, despite the expansion of health insurance and consumer protection. Can we use the waiver to make the health insurance system ever simpler and easier to navigate for Californians and their providers? Can we align incentives between programs, among plans and their delivery networks? The remainder of this brief explores ways that California and other states might design a §1332 waiver to make health coverage more consumer-friendly, affordable, and supportive of payment and delivery system reforms that both improve health outcomes and slow the growth in health spending. Can we come to agreement on approaches that save money and reinvest the savings in improving affordable coverage?

Affordability

The ACA has increased access to more affordable health coverage for millions of Californians. The most recent studies suggest that we have more than cut the numbers of uninsured Californians in half.[9] A recent study indicates that 80% of the subsidy eligible population has enrolled in California, giving it one of the best risk mixes in the nation.[10] Yet an estimated 30% of the remaining uninsured Californians are eligible for Covered California but not enrolled.[11] The primary reason cited by individuals for remaining uninsured was affordability; the second was ineligibility for the program (e.g. documentation). [12] For some households, particularly for older adults with incomes just above subsidy eligibility (400% FPL) and no other source of coverage, Covered California plans can still be financially challenging since it can comprise a large percent of their incomes.[13] Likewise, families with incomes above 266% of FPL face special affordability challenges as Medi-Cal eligibility for their children ends[14]. A major challenge for households remains at the subsidy cliffs – abrupt increases in cost when their incomes rise above 138% of FPL, above 266% FPL and again above 400% FPL. At 139% of FPL, an individual loses Medi-Cal eligibility and must decides between the lower premiums and higher out-of-pocket for bronze tier coverage and an enhanced silver plan (higher premiums and much lower cost sharing). ACA cost-sharing subsidies and Medi-Cal eligibility for children both end at about 266% FPL, creating another very marked increase in out of pocket costs for many families just exceeding that threshold.

California could seek a §1332 waiver to achieve the goals of better consumer affordability and predictability in consumer costs. With this opportunity, the State could restructure the sliding scale for subsidies, with the goal of smoothing abrupt increases in premiums and cost sharing as households’ income increases. For example, adding family cost-sharing subsidies that phase out above 266% FPL and premium subsidies that phase out between 400% and 500% FPL would make those transitions less jarring for households and individuals when their incomes increase.[15]

There is an inherent conflict between affordable premiums and affordable access to services; in other words bronze plans cost less in monthly premiums but pay a smaller share of provider fees; the result is low and moderate income people who buy bronze coverage, but without the ability to afford access to care when they get sick due to high deductibles and copays in bronze plans. While the enhanced silver plans mitigate this conundrum, not all low and moderate income subscribers can afford the premiums for silver tier coverage.  Covered California could offer additional affordable plan choices to consumers using a §1332 waiver to develop and offer a new “enhanced Bronze” plan. This option would offer sliding-scale cost-sharing reductions that are parallel to the enhanced Silver plans, but with actuarial values that are 10% lower than the enhanced Silver option.

California could allow counties to help make the premium payments for their needy citizens and could allow them to buy up from bronze to enhanced silver and silver to gold coverage where warranted and needed to keep subscriber’s out of pocket costs to a more reasonable and affordable level.  Likewise, they could allow low wage small employers to make similar investments in their employees’’ health coverage. This would not require a §1332 waiver, but rather an agreement between Covered California and the county or the small employer.

California could also attempt to eliminate the “family glitch” through a §1332 waiver. Currently, the standard for determining whether or not an employer’s offer of coverage is affordable is the cost of self-only coverage. If an offer of self-only coverage (and not family coverage) is greater than 9.66% of household income, then it is deemed unaffordable. This then allows the individual who was offered employment-based coverage to access premium and cost-sharing subsidies through Covered California; otherwise no subsidies are available in the Exchange. At the same time, if an individual worker’s self-only coverage is less than 9.66% of his/her household’s income, and the worker’s employer simultaneously offers family coverage that exceeds that share of household income, even by a considerable amount, that offer of family coverage is considered affordable. This rule prevents the family members from accessing premium and cost-sharing subsidies to purchase a Covered California plan even if the offer of family coverage is very expensive to the household.[16]

The State could elect to change the affordability standard to add a specific threshold for family coverage. For example, the State could allow those with an offer of family coverage that exceeds 8.5%, 9.66% or 12% of income to access subsidies through Covered California.[17] This rule change would allow more individuals to take advantage of subsidies to purchase Covered California plans, expanding the reach of health coverage to more Californians. To achieve cost neutrality to the federal government, the state would need to pair it with a cost savings measure, possible approaches to reduce premiums such as the “public option” or state reinsurance for catastrophic cases could help achieve cost neutrality.

As part of her Presidential campaign, Secretary Clinton proposed to reduce the affordability threshold to 8.5% and apply it to the entire family.[18] If enacted, this approach would eliminate the family glitch and obviate the need for a §1332 waiver.[19] Candidate Trump went further and promised to reduce high deductibles, reduce soaring premiums and increase affordability of individual insurance while assuring coverage for every American. Republican “repeal and replace” measures to date have gone in the opposite direction – far fewer covered, less assistance and higher costs.

California could also expand the tax credit for small business to provide greater assistance for those that would like to offer coverage. The ACA’s tax credit for small businesses can currently cover up to 50% of premium costs and is available for two years. Qualifying employers must have fewer than 25 employees, average annual employee wages of less than $50,000, and also pay for at least 50% of the cost of premiums for employee coverage through Covered California for Small Business (CCSB), formerly known as SHOP. The State could elect to extend the credit to businesses with more or fewer employees and/or for a longer period of time to provide stronger incentives for small employers to offer coverage. This approach, while as yet little used by employers, has some potential to increase the rates of small low wage employers offering coverage, reduce the numbers of uninsured and save federal funds.[20] Hawaii  recently proposed and received CMS approval for a §1332 waiver to better target the small employer tax credit to very small low wage employers (8 or fewer) and to eliminate the SHOP program for small employers.[21]

Covered California submitted then withdrew a §1332 waiver proposal to offer mirror coverage to the undocumented, but with no premium assistance or cost sharing subsidies.[22] The state estimated that 18,000 undocumented uninsured might apply, primarily mixed status families with higher incomes.[23]       

To satisfy the requirement that waiver programs not add to the federal deficit, the State would have to take into account costs of financing more generous subsidy structures or allowing more family members to gain access to premium and cost-sharing subsidies. California could make program savings in Covered California, or it could contribute some existing state funds currently spent on the uninsured to this project as the need for this particular program spending evaporates. A portion of General Funds, realignment or Proposition 99 funds that the state or the counties use to support care to the higher income uninsured could be redirected to make coverage more affordable to people who are eligible but have not enrolled in Covered California plans due to cost. Rather than financing programs that pay for services to those uninsured individuals and families who are eligible for Covered California, financing increased premium and cost-sharing reductions to enroll them in Covered California may be a more effective way to apply those resources.[24]

Alternatively, California could finance more generous subsidy structures by establishing an additional tax on the most costly health plans, as the ACA is scheduled to do in 2020. The ACA’s “Cadillac Tax” is a 40% excise tax that will apply to plan costs that exceed $10,200 for individual plans and $27,500 for family plans.[25] A California tax could apply to those employer and Exchange plans with large year over year premium increases, creating the financial incentives for these plans to start to manage their costs more effectively.[26] Such a tax would serve to curb increases in health costs and premiums over time, while making coverage more affordable for more households and allowing more people to purchase coverage.[27]

Under the new guidelines, the United States Treasury Department has stated that states, not the federal government must pay for the administrative costs of any variation from the nationwide tax policies of the Affordable Care Act.[28] This may pose a huge barrier to innovation that the Congressional lawmakers may wish to discard.

Coverage Requirements

States additionally have the ability to adjust or eliminate both the individual and employer mandate penalties/taxes and exemptions. It is as yet unclear what that means. For example, could the State increase the size of the penalties to motivate more individuals to purchase coverage or more employers to offer? Could a state then move to auto-enrollment instead of the individual mandate as two Republican Senators suggested? Could a state set a waiting period for those who failed to enroll and maintain enrollment in health coverage as Senate Republicans proposed in lieu of the individual mandate. The State could also broaden or narrow the number of individuals to which the requirement applies by broadening or narrowing the number of current exemptions to the individual requirement in conjunction with improved affordability as discussed above. The State would have to find offsets for the financial impact of any change that would reduce federal revenue from penalties for individuals who do not have coverage, but the revenue from these tax penalties collected is not large. Furthermore the federal guidance indicates that the State would be responsible for the administrative costs and any changes in penalties would have to be administered at the state level due to federal concerns about maintaining a uniform national tax policy.[29] This may need to be changed as well.

Could states also increase or decrease the number of businesses that would be required to offer coverage by adjusting 50-employee threshold currently in place under the ACA?[30] Hawaii, which has an ERISA exemption, requires employers of one or more employees to offer coverage to all employees working 20 hours or more after they work at least 4 weeks.[31] California could also have the ability to broaden or constrict the range of employees to whom businesses would have to offer coverage. For example, the current threshold for full-time employment is 30 hours of work per week. Could the state raise or lower that number of hours, which would result in a greater or smaller number of employees receiving an offer of coverage?[32] The State could also change the standard for what would qualify as minimum essential coverage that satisfies the requirement for an employer offer of coverage. Hawaii for example limits the employee’s share to 1.5% of wages while the ACA permits employers to charge employees 40% of the lowest cost bronze plans and even more for the more costly plans.[33] Likewise Hawaii employers must offer platinum or gold plan levels of coverage, while the ACA only requires an offering of bronze levels of coverage.[34]

The ACA’s employer requirements are minimal – an employer must pay 60% of the lowest cost bronze plan; this means that their employees could be liable for 64% of their health costs through premiums and cost sharing. However California employers on average pay for 3/4th of the premiums for a gold level plan. Should we increase the standard to reflect the market?

Alternatively, instead of requiring that businesses offer coverage or pay the penalty defined by the ACA, the state could structure employer requirements differently. The State could require that a certain portion of a firm’s payroll be dedicated to health care either through coverage or a “fair share” contribution—a model similar to that of Healthy San Francisco.[35] The funds from fair share contributions might then be dedicated to fund additional premium assistance for individuals and families buying insurance through Covered California. Healthy San Francisco’s financing applies to smaller employers and to part time workers while the threshold for the ACA is 50 full time equivalent employees and at least 30 hours a week. Healthy San Frnacisco reaches smaller employers; whereas the ACA threshold is 50 full time equivalents and above.

While some employers may make the calculation that offering full health coverage for part timers and other flex workers in the fast growing gig economy may be too costly, they might be far more willing to contribute a meaningful pro rata portion towards their part time employees’ premiums. With the State offering an employer contribution to Covered California as an option, this approach may use the revenues more effectively to expand coverage, or to allow consumers to purchase more comprehensive coverage (e.g., a silver or gold plan instead of a bronze plan).

Covered California could facilitate employer premium contributions by adding employer portals and accounts to its online infrastructure for those employers wishing to contribute towards their the premiums of flex workforce employees purchasing individual (or family) plans.[36]

A key consideration with altering either the individual or the employer mandate is ensuring federal budget neutrality and using a state administrative structure. Any policy change that would lessen the amount of penalties or how they are applied would reduce the amount of revenue to the federal government. Therefore, a §1332 waiver would have to find cost savings elsewhere to compensate for any loss in revenue from relaxing penalties. Increasing penalties could increase the numbers of privately insured, reduce federal costs and reduce the numbers of remaining uninsured. Providing additional options for employment-based or employment-financed coverage also could reduce the numbers of remaining uninsured and reduce federal spending. Relaxing individual and employer requirements without a corresponding approach, such as a Basic Health Plan, could result in fewer people having coverage. Since a §1332 waiver would be required to cover as many people as the ACA, there would have to be a waiver feature that would counteract any reduction in that number from eliminating the mandates (e.g., additional premium subsidies to enhance enrollment or a feature such as annual auto-enrollment with an opt out opportunity).

Program Alignment and Simplification

A §1332 waiver submitted in conjunction with a §1115 waiver would allow California and other states to modify both Medi-Cal (Medicaid) program and Covered California to create a more aligned program and set of policies that would be friendlier to families with members in both programs, and to individuals and families who move between the programs. California could design reforms that would blend the programs so that health plans could more easily offer coverage in both the Medi-Cal and Covered California markets. Many households experience year to year and month to month income fluctuation; the ability to remain in the same plan with the same provider and the same treatment plan and team when moving back and forth between programs could allow for greater continuity of care, better outcomes, lower costs and lessened risk of spells of uninsurance. This feature is particularly important for patients with complex or chronic or behavioral illnesses where treatment and provider continuity are key to the success of treatments. Imagine a laid off employee with a spouse and children losing their family physicians in their employment-based coverage plan and seeking to find them in the Medi-Cal delivery networks for their children and the Covered California plans and networks. Ideally we want the state’s health plans and their networks participating in all three programs.

California is implementing whole person care pilots and the health home programs for those Medi-Cal patients with costly complex and multi-system medical conditions pursuant to a Medicaid waiver and §2703 health homes.[37] If they do work as designed, we  may want to adopt parallel and complementary systems of care for the same types of patients in Covered California.

Arkansas and Iowa extend coverage to newly eligible Medicaid beneficiaries by enrolling them in their states’ marketplace plans. A blended or more unified Medi-Cal and Covered California with a uniform eligibility standard between the programs might allow family members to obtain coverage under the same plan, and if plans offer coverage in both programs, families could keep their provider and plan if their income eligibility churns between them.[38] A move towards whole family care and coverage could be particularly beneficial for all family members and their network of providers. Policy alignments that allow more plans and providers to participate in both programs would serve to increase continuity of care and to improve outcomes for individual patients and the entire family. Wrap-around and supplemental coverage concepts could be used to assure affordable full scope coverage for groups such as children and pregnant women.

California could use a §1332 waiver to design even broader market alignment and delivery system reforms by attracting the individual and small-group commercial markets inside Covered California, and also could allow large employers to purchase through Covered California, and potentially attract the non-self-insured large group commercial market within Covered California.[39] A more consolidated marketplace would allow Covered California, Medi-Cal and their contracting plans to obtain the best values for consumers and facilitate the greatest degree of delivery system reforms. In addition, the shopping process could become and needs to become even more streamlined and consumer-friendly with apples-to-apples comparisons among more plans and carriers.

Covered California sought then withdrew a §1332 waiver as a means of allowing undocumented immigrants to purchase Covered California plans, albeit without the federal subsidies which will ultimately be needed to promote full enrollment.[40] The proposal estimated that 18,000 of the remaining uninsured could be covered within a range from 9,000 to 28,000. Most participants would be higher income undocumented workers living in mixed status households. This could be a stepping-stone and building block for their coverage. Using employment-based coverage strategies might provide a better answer to the very real affordability challenges these workers face.[41]

Value-Based Payment, Cost Containment, and Delivery System Reform

Among Covered California individual market offerings, a §1332 waiver would allow the State wide flexibility to restructure the federal funds used for premium tax credits. Currently, the subsidies are tightly tied to the price of reference plan, second lowest cost silver; this creates strong and appropriate incentives to compete on price, but quality is left out of the equation. For example, the state could adjust tax credits for each plan based on performance on predefined quality or health outcomes metrics.[42] Ultimately, a healthier California leads to lower cost coverage for all plans and programs. Absent the right incentives, plans are less likely to compete on improving outcomes.[43] Adding quality and outcomes as a factor in determining premium assistance available for the different plans would motivate consumers to choose the plans that offer higher value.[44] [45]

A more unified marketplace across health care payers would additionally allow for a more coordinated and concerted push toward higher quality services and cost-containment. If Medi-Cal (Medicaid) and Covered California became more unified administrative entities, they would be able to jointly steer the commercial and Medi-Cal delivery systems toward value with parallel or complementary value-based incentives and quality improvement programs. Coordinated contracting strategies are important to enabling providers to participate in both commercial and public coverage markets. Currently, providers must navigate a multiplicity of quality improvement programs and incentives from different health plans and programs, which may or may not cancel each other out or leave physicians with conflicting incentives. A more aligned set of value-based contracting strategies would help to reduce administrative burdens for providers and prevent various incentives from diluting or detracting from one another.

Further, California could seek to align purchasing strategies of Medi-Cal, commercial, and Medicare Advantage plans by purchasing Medicare Advantage Plans through Covered California as well. To implement this structure, California would need to secure a Medicare waiver along with §1332 and Medicaid §1115 waivers. Bringing Medicare Advantage plans within Covered California would allow it to apply a similar contracting strategy and incentive structure for this market, with the aim of robustly and uniformly motivating plans and providers to prioritize similar quality improvement and cost containment goals.

Other Changes Possible Without a §1332 Waiver

It is also important to note that the ACA allows states the flexibility to alter several elements of their coverage expansions without seeking a waiver. States have a great amount of flexibility in choosing the benchmark plans that define their essential health benefits packages. A state would only need a waiver if it wanted to significantly modify or seek an exemption from the essential health benefits requirement. In this case, a state would still be required to offer a benefits package that would be as comprehensive as what would have been offered through an ACA-compliant essential health benefits package.

With regard to the value-based purchasing or quality improvement strategies discussed above, Covered California already attaches requirements to its contracts with qualified health plans through its selective contracting process, and it could expand those requirements without a §1332 waiver. Since California’s marketplace has the power to exclude plans, it could use its existing authority to implement certain quality improvement programs or payment reforms across participating plans.[46], [47]

The ACA allows the State to merge the Covered California for Small Business (CCSB) and individual markets within Covered California at any time, including either their administration or risk pools, or both.[48],[49] In 2017, the ACA also gives Covered California the option to begin allowing businesses with more than 100 employees to purchase coverage through the CCSB, which might greatly broaden the risk pool and purchasing leverage.[50]

Conclusion

In sum, California could reach very broadly across commercial and public insurance markets to make coverage more affordable, consumer-friendly, and high-value if the State pursues a §1332 waiver in coordination with a Medicaid §1115 waiver and a Medicare waiver. This kind of broad, coordinated action across payers could incentivize a large share of California’s health care system to increase quality performance and control costs. It may additionally allow households with members in multiple forms of coverage to enroll in the same plan, or allow individuals who transition across programs to remain in the same plan with the same delivery network.

The State ought to begin to begin these exploring discussions and the planning process sooner rather than later. A multi-waiver planning process would be complicated and involve a large number and range of stakeholders. Regardless of the specific goals that stakeholders agree to work toward, the State will need time to design its approach, and an earlier waiver submission would allow California to take advantage of the opportunities that coordinated waivers could offer in the nearer term.

In the meantime, the State can also make a number of changes to its coverage framework without a §1332 waiver that could benefit its health care consumers and providers. In 2017 and beyond, the §1332 waiver would allow California to develop a much broader, more comprehensive approach to health reform that could maximize the positive impacts of the ACA.

Prepared by Lucien Wulsin and John Connolly, ITUP

Dated: September 10, 2015

Updated by Lucien Wulsin, ITUP

Dated: February 15, 2016

Updated by Lucien Wulsin, LucienWulsin45@gmail.com

Dated: October 15, 2016

Updated by Lucien Wulsin, LucienWulsin45@gmail.com

Dated: September 28, 2017

 

 

 

 

 

Appendix 1: Excerpt from Care, Coverage and Financing for Southern California’s Uninsured[*]

§1332 waiver

Section 1332 offers California a waiver opportunity to design its own program consistent with the state’s priorities. This could be combined with a Section 1115 waiver. The state’s waiver cannot spend more than the ACA would otherwise spend – i.e. it must be budget neutral, as would a §1115 waiver. It must cover at least the same numbers of eligible individuals and services and meet the affordability standards of the ACA. This is an opportunity to increase the numbers of enrollees in Covered California and in Medi-Cal. It is not an opportunity to truly cover the undocumented uninsured, but it is a chance to design a better system for Californians. This also could be an opportunity to align Medicare purchasing and reimbursements with the other public programs. This could be an opportunity for California to simplify programs so that they work in the best interest of subscribers, payers and providers.

Hybrid: California could construct a consolidated hybrid program combining some of the best features of Medi-Cal and Covered California. It could seek to offer a broader choice of plans and providers than does Medi-Cal, with lower out of pocket deductibles and co-pays than does Covered California. Subscriber responsibilities could be phased up in a more graduated fashion. Plan offerings could be built on capitation with the same vertically integrated financial incentives for all. Plans could become regional in nature to reflect the underlying health care markets that subscribers use.  Prices and quality could be more fully transparent to subscribers so they can make better- informed choices.

Employment based coverage could be offered though the updated Exchange through the same plans and provider networks available to individual subscribers.

Transitions and Churning: There are several key transitions: back and forth between employment-based coverage and Covered California, between Covered California and Medi-Cal and between employment-based coverage and Medi-Cal. There are administrative hurdles at each intersection and choices of different plans and provider networks that end up disrupting continuity of care and medical treatments for subscribers. The goal of this aspect of the waiver could be to make these transitions seamless and prevent the care and treatment disruptions associated with churning.

Affordability Cliffs: There are three abrupt affordability cliffs: 138% of FPL, 266% of FPL and 400% of FPL. See Table 1 to see how these cliffs operate. As individuals reach 138% and transition from Medi-Cal to Covered California, they start to pay premiums, and experience larger copays and deductibles that vary based on their choice of plan and metal tier. At 250% of FPL, the enhanced silver tax credits for copays and deductibles end, and then at and then at 266% of FPL so does Medi-Cal coverage for children. At 400% of FPL, tax credits for premium subsidies end causing a large increase in the share of income devoted to premiums for older individuals. California could smooth out these abrupt increases in the affordability of health costs and premiums using a §1332 waiver. We would recommend a 2, 4, 6, 8 approach in which subscribers’ premium contributions for the reference plan are capped at 2% of income below 200% of FPL, 4% below 300% of FPL, 6% below 400% of FPL and 8% above 400% of FPL.

Premium Assistance: Premium assistance permits a county, a provider or an employer to pay a part of an individual’s premium or to upgrade their coverage from bronze to enhanced silver.[51] Some counties, providers and employers may be interested, and Covered California could be interested as well in testing these concepts. The state is already requiring Covered California to develop this option for certain groups. This approach can be done independently without a §1332 waiver and would be an effective use of local funds.

Enhanced bronze

Nearly all individuals qualifying for subsidies have chosen silver or bronze due to the lower premiums, and the share of individuals choosing bronze are increasing. The enhanced silver helps to pay copays and deductibles and makes the coverage far more meaningful for those who qualify.[52] The low premiums of bronze are very attractive to individuals with little disposable income, but do not afford nearly as much access to health care due to the 60/40 cost sharing. In a §1332 waiver, California could consider an enhanced bronze that parallels enhanced silver, but at 10% lower actuarial value (i.e. if enhanced silver is a 94% of actuarial value for a low-income individual, an enhanced bronze would be at 84% of actuarial value for the same individual). This would allow those low and modest income individuals a better combination of affordable premiums and coverage that allows them to seek needed health care. See Table 1 for the differences in premiums and actuarial values for bronze and silver tiers at 140% and 250% of the federal poverty level.

Other Reference Materials

·       Coleman, Assistance with Premium Payments and Cost Sharing: http://itup.org/health-financing/2014/05/13/draft-assistance-with-premium-payments-and-cost-sharing-the-non-federal-share/

·       Peganny, Advancing the Triple Aim for Employment-Based Insurance: http://itup.org/itup-latest-news/2016/01/05/advancing-the-triple-aim-for-employer-based-health-insurance/

·       Wulsin, Open Enrollment: Lessons from the Field: http://itup.org/itup-latest-news/2016/01/04/open-enrollment-lessons-from-the-field/ 

·       Connolly, Payment and Delivery Systems Across California: http://itup.org/delivery-systems/2016/01/06/payment-and-delivery-systems-across-california/ 

·       Wulsin, Where are We Going, Where Should We be Going: http://itup.org/legislation-policy/2015/09/14/where-are-we-going-where-should-we-be-going/