Commonwealth Fund and Robert Wood Johnson Foundation: Innovation Waivers – An Opportunity for States to Pursue Their Own Brand of Health Reform

This issue brief from The Commonwealth Fund and the Robert Wood Johnson Foundation’s  State Health Reform Assistance Network describes the State Innovation Waivers available through section 1332 of the Affordable Care Act and outlines some options that states might consider through such a waiver. The issue brief was authored by Manatt, Phelps, & Phillips.

For example, a state might pursue a consolidated 1332 and Medicaid section 1115 waiver to smooth the subsidy cliff faced by individuals moving from Medicaid to the marketplace. It could align premiums for higher-income Medicaid enrollees with those of lower-income marketplace enrollees and, in doing so, could redeploy the aggregate value of tax credits and cost-sharing reductions to increase subsidies for those with more modest incomes and develop more graduated subsidies.

Alternately, some states may pursue the addition of high-deductible, lower-premium plans with greater cost-sharing than is currently allowed in the marketplaces and use the savings to offer health savings accounts to ease cost burdens on low-income individuals.  Some states might be interested in implementing value-based purchasing models that increase cost-sharing for lower-value services or lower-quality plans.

Eliminating the marketplaces may be an especially attractive option in smaller states where only limited numbers of residents use them.  For example, states may seek to replace the marketplaces with a system that offers vouchers for eligible individuals to purchase coverage from any lawful seller of ACA-compliant coverage. Alternately, states may leverage the rapid growth of internet-based brokers and private exchanges to outsource marketplace functions.

On the other hand, some states may want to enhance their marketplaces’ scale and leverage by using a section 1332 waiver to offer coverage options for additional populations or even to serve as the sole provider of health insurance in the state. States may take incremental steps in this direction by, for instance, adding state employees or other large purchasing pools to their marketplaces.

As an alternative to the employer mandate, states may want to implement a “play or pay” requirement in which employers must pay a flat percentage of payroll in benefits or taxes. With the relatively low enrollment in the Small Business Health Options Program (SHOP), many states may welcome the flexibility to experiment with new approaches to serving the small business community.

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