Section 1332 Waivers for State Innovation
Section 1332 waivers were created by the ACA to allow states to pursue alternative strategies for increasing access to coverage, reducing premiums and increasing enrollment for their citizens, while retaining the basic protections of the ACA. States could waive or opt out of a number of ACA requirements, including certification of qualified health plans, requirements for essential health benefits, or the delivery of benefits through the marketplace, and could receive “pass through” funding equal to what premium taxes, cost-sharing subsidies, or small business tax credits would have been for the state’s citizens without a waiver. Under the ACA, the innovation strategies proposed and implemented by states are required to provide access to care that is at least as comprehensive and affordable as would be provided without the waiver and have no impact on the federal budget.
Although Section 1332 waivers became available to states at the beginning of 2017, there was limited interest among states, in part because of how the Obama administration interpreted budget neutrality and other requirements.
The BCRA does not modify the basic provisions of Section 1332 but would modify and expand the waiver option by amending the criteria required for waiver approval. States would no longer be required to demonstrate that their waiver plans would meet the comprehensive coverage, affordability and budget neutrality requirements established by the ACA. Instead, the bill would require HHS to approve a state’s waiver application unless it determined the state’s plan would increase the federal deficit.
The BCRA also would modify the portion of Section 1332 related to pass through funding to allow states to request that all, or a portion of, the aggregate pass through funding be paid directly to the state, although funding for cost-sharing subsidies and small business health insurance tax credits, which are available as pass through funding under the ACA, would be eliminated elsewhere in the bill in 2020. The BCRA would allow states to use funds appropriated for the Long-Term State Stability and Innovation Program created by the bill, as long as the planned use for the funds is consistent with the requirements for the use of funds under that program and would also appropriate $2 billion to HHS to provide grants to states for submitting a waiver application and implementing the state plan approved under the waiver until the end of federal fiscal year (FFY) 2019.
The waivers would be approved for up to eight years, or less if requested by the state, and could not be canceled by HHS once granted. They could be renewed in unlimited eight-year periods.
States that may have contemplated combined Section 1332 and 1115 waivers—for private insurance and Medicaid, respectively—but were not able to because of the way the Obama administration interpreted budget neutrality, might now have reason to consider them again, although the legislation does not explicitly define a process for combined waivers.
Taxes
Like the House bill, the BCRA would repeal or modify several taxes or tax limitations imposed by the ACA, including the “Cadillac tax” on benefit-rich, employer sponsored health plans, and the cap on contributions to health savings accounts, and would establish different effective dates for some of the tax items.
State Stability and Innovation Program
The BCRA would establish the State Stability and Innovation Program and appropriate $112 billion over nine years to the Administrator of the Centers for Medicare and Medicaid Services (CMS) to be used to “address coverage and access disruption and provide support for states.” For 2018 through 2021, $60 billion of the funds would be provided to health insurance companies to stabilize premiums and encourage insurers to offer plans in the individual market. The remaining dollars would be used to create a Long-Term State Stability and Innovation Program that would provide funds directly to states for 2019 through 2026 to:
- Provide financial assistance to high-risk individuals (projected to have high health care utilization) enrolling in the individual market who do not have access to employer-sponsored insurance;
- Provide payments to health care providers; and,
- Provide assistance to low-income individuals with private insurance coverage to reduce their outof-pocket costs (co-payments, coinsurance and deductibles).
Medicaid
The Senate bill, like the House version, would limit the federal government’s share of the cost of Medicaid by placing hard limits on the cost growth of the program. The per-person costs for most Medicaid enrollees would be limited to a base period’s costs increased by an inflation rate, known as a per capita cap. States also would have the option of using a block grant for nondisabled, non-elderly adults.
Repeal of Medicaid Expansion
The BCRA includes a phase-out of the ACA’s enhanced federal funding for Medicaid expansion. Instead of ending it in calendar year 2020 as the House bill does, the Senate bill would phase out the enhanced expansion match rate starting in 2021. The enhanced rate would not be available at all after 2023. Like the House bill, the Senate bill would not provide for any enhanced match rate for states that expand Medicaid on or after March 2017.
Per Capita Allotment for Medicaid
The per capita cap would work much like the House version, with some modifications. Two changes are worth noting. First, the per capita caps on each eligibility group—seniors, people with disabilities, children and other adults—could be adjusted by up to 2 percent to penalize states with much higher-than-average costs, and to reward states with much lower-than-average costs. In addition, states would be allowed to select any eight-quarter period between FFY 2014 and the third quarter of FFY 2017 as the base period for setting the caps.
Like in the House bill, the inflation rate used to set the caps beginning in FFY 2020 would be the medical component of the Consumer Price Index, CPI-Medical, for children and some adults, and an additional 1 percent for seniors and those with disabilities. But in FFY 2025, the BCRA would start using the overall CPI for urban consumers, CPI-U, which is typically significantly lower than the CPIMedical.
In federal fiscal years 2023–2026, states that did not exceed their per capita caps would be eligible for quality-based bonus payments for Medicaid and the Children’s Health Insurance Program (CHIP). The total bonuses would be capped at $8 billion over the four years for all eligible states.
Flexible Block Grant Option
States could elect to accept a block grant for a five-year period for non-disabled, non-elderly adult enrollees, and with it waive a number of standard Medicaid requirements. The block grant would be adjusted annually by the CPI-U. States could keep any block grant funds not spent on enrollees and could use them for other health programs, or even non-health programs (with limitations that would be written in regulation by HHS). States would have a “maintenance of effort” requirement equivalent to the match rate for CHIP multiplied by the block grant amount (in Kansas, the post-ACA CHIP match rate is likely to be around 70 percent).
Safety Net Funding
From FFY 2018 to 2022, non-expansion states would share $2 billion in annual federal safety net funding for provider payment adjustments. The funds would be distributed based on the relative number of people in each state with incomes below 138 percent of FPL in 2015.
Disproportionate Share Hospital Payments
Non-expansion states would see the scheduled reductions in Disproportionate Share Hospital (DSH) payments canceled. Some non-expansion states with lower-than-average per-person DSH allotments would get a bonus to pull them up to the average.
Other Medicaid Provisions
As in the House bill, states would be permitted to implement work requirements for non-disabled, nonelderly, non-pregnant adults. The Senate bill would provide for a 5-percent bump in the federal match for administrative expenses related to implementing the work requirement.
The BCRA would phase down taxes on providers and health plans that are used to support Medicaid rates to a 5-percent cap. The current cap is 6 percent, and the bill would start lowering the cap by 0.2 percent per year in FFY 2021, finally landing on the 5-percent cap in FFY 2025. The Kansas Legislature this year raised the privilege fee (a form of provider tax) on health maintenance organizations, including the KanCare health plans, to 5.77 percent to generate funds to reverse the Medicaid reimbursem*nt rate cuts.
States with managed care waivers that have been renewed at least once would no longer need to use the waiver renewal process, instead submitting a state plan amendment to continue waiver authority in perpetuity. Such “grandfathered” waivers could be modified only by a waiver amendment, but HHS would have just 90 days to review and approve an amendment or request more information (similar to the current state plan amendment process).
The BCRA would allow states to provide Medicaid coverage for qualified inpatient psychiatric hospital services for up to 30 consecutive days, and 90 days per year, to beneficiaries age 22–64. Current law prohibits use of federal funds for such services except at small facilities with no more than 16 beds or for limited, short-term stays for managed care enrollees. This modification to the so-called Institutions for Mental Diseases (IMD) Exclusion could open the door for larger crisis centers across the state.
Prohibition on Use of Federal Funds
The BCRA would prohibit state use of federal funding for defined “prohibited entities” for one year, whether directly or through managed care. The definition, which references family planning, abortion services, and total Medicaid funding in FFY 2014, appears to apply to Planned Parenthood. The prohibition would be in effect regardless of the established programmatic rules in Medicaid regarding choice of provider and non-exclusion of providers based solely on the range of services they provide.
Prevention and Public Health
Like the House bill, the BCRA would repeal all Prevention and Public Health Fund appropriations beginning in FFY 2019. However, as a response to the national opioid epidemic, $2 billion would be appropriated to HHS for FFY 2018 to provide grants to states to support substance use disorder treatment and recovery support services for individuals with mental illnesses or substance use disorders. The additional $422 million in funding for the Community Health Center Fund provided in the House bill is also included in the BCRA.
Conclusion
While it is uncertain whether the Better Care Reconciliation Act will be passed by the full Senate in the near future, or how it may be amended, it is clear that House and Senate Republicans continue to share a vision to repeal and replace the Affordable Care Act. Although Senate Republicans had hoped to vote on the bill prior to the Fourth of July week recess, it now appears they have much more work to do to get to consensus. A vote is now not expected until later this summer
