Changes to ACA innovation waivers could broadly redefine what counts as coverage: KFF

Seema Verma speaking at press conference
CMS Administrator Seema Verma has pushed to make more plans permissible under 1332 waivers. (whitehouse.gov)

CMS' new conditions for approving ACA innovation waivers could have a profound impact on the type of coverage patients receive, Kaiser Family Foundation warned in a new analysis.

The new criteria, which CMS released (PDF) late last month, eases the process of obtaining section 1332 waivers—innovation waivers that allow states to experiment with new ways of providing health coverage. The agency characterized the move as one that opens the door for creative ideas that weren't previously acceptable.

The new options "promote consumer engagement, personal freedom and choice, spending smarter, price transparency, portability, and controls over premium growth," CMS Administrator Seema Verma said in a recent appearance.

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However, critics of the change, including KFF, worry that the new criteria are so loose that they would enable subsidies to be spent on non-ACA compliant plans—including short-term plans that may not cover pre-existing conditions.

"'Coverage' is re-defined to include plans that do not comply with ACA rules, including short-term, limited duration plans and association health plans," KFF wrote. "This change is accomplished by referencing a different term in federal law than the earlier guidance—'health insurance coverage,' which is defined to include short-term plans in addition to ACA-compliant policies."

RELATED: New ACA innovation waiver policy brings major changes to state marketplace coverage

Before this rule change, only eight states had won approval for 1332 waivers and all included only modest changes. Most used the waiver authority to receive federal pass-through funding to implement reinsurance programs.

But after President Trump took office, two states, Iowa and Idaho, submitted waivers that included much broader changes. CMS didn't approve them at the time, but advised Idaho's governor (PDF) that “with certain modifications, these state-based plans could be legally offered under the [federal law’s] exception for short-term, limited-duration plans.”

With the agency's new rules in place, Idaho, and other conservative states, have a better chance of getting such programs approved. KFF said that the new waivers could subsidize ACA non-compliant plans offered through parallel insurance markets and allow states to reallocate federal subsidy dollars across demographic groups. 

These changes carry the risk of splitting the insurance market, leaving chronically sick beneficiaries with higher bills, KFF said.

"Parallel markets could divide the risk pool, isolating people with pre-existing conditions," KFF wrote. "Although the Section 1332 authority expressly does not permit waiver of the ACA market rules that prohibit insurance discrimination against people with pre-existing conditions, the new 2018 guidance allows states to set up and subsidize parallel, less-regulated insurance markets, featuring short-term health insurance that is medically underwritten and provides less comprehensive coverage."

"This uneven playing field could fragment the insurance market, steering healthy consumers to less-regulated coverage and driving up premiums for people with pre-existing conditions whose only options are ACA-compliant plans," KFF added.

Meanwhile, KFF noted that more progressive alternatives are discouraged by the new rules. Since they emphasize private coverage, the new rules don't leave much room for states to build on Medicaid, adopt a public option or create a single-payer program.

To view all the new changes at a glance, KFF rounded up all the differences between the new rules and the original 2015 guidance in a single chart:

(KFF)