CMS's warmup for AHCA-world: Guidance on ACA innovation waivers
CMS recently issued guidance to states seeking ACA Section 1332 "innovation waivers," by which states can apply to alter or even thoroughly redesign their ACA marketplaces.
The checklist offers explicit encouragement to states to seek federal funding for reinsurance programs or high risk pools:
In particular we welcome the opportunity to work with states to pursue Section 1332 waivers incorporating a high-risk pool/state-operated reinsurance program. State-operated reinsurance programs have a demonstrated ability to help lower premiums, and if the state shows a reduction in federal spending on premium tax credits a state could receive Federal pass-through funding to help fund the state’s reinsurance program.
Encouragement to states to implement a reinsurance program is good news, as reinsurance does keep down premiums, and the expiration of the ACA's federal reinsurance program after 2016 contributed to the 2017 premium spike. Including the high risk pool (HRP) option is a bit of a mystery, since 1332 waivers cannot be used to waive the ACA's ban on medical underwriting or guaranteed issue. (The waivers can be used to alter the ACA's Essential Health Benefits required of all qualified health plans, as well as subsidy formulas and the individual and employer mandates.)
It seems, then, that the HRPs encouraged here would have to be something like the "invisible risk pools" for which funding was tacked onto the AHCA prior to House passage. In an invisible risk program, insurers earmark enrollees in their ordinary offerings who have certain pre-existing conditions, forfeit the bulk of their premiums and shed responsibility for their healthcare costs above a certain threshold, the tab picked up by state and/or federal funding. High risk enrollees obtain their insurance on the same terms as other enrollees.
The limitation to invisible risk programs in the waiver checklist is not spelled out, but it seems required by the ACA. Nicholas Bagley, Professor of Law at U. Mich, concurs, writing to me, "to make a high-risk pool option work [under an ACA 1332 waiver], you'd have to work out the risk-sharing on the back end, not the front end. No waiver could allow an insurer to say 'no' or to charge more on account of someone's health status, so it's hard to see how you could shunt sicker people to a high-risk pool."
That's under the ACA, of course; the AHCA, if enacted, would allow states to opt out of the ban on medical underwriting. In general, CMS's encouragement of 1332 waiver applications may be regarded as a kind of warm-up for a post-ACA world -- witness the waiver scheme that Oklahoma is deliberating.
There's one more mystery in the checklist. While the ACA's ban on medical underwriting does not fall within the scope of provisions that can be waived under Section 1332, the requirement that insurers maintain a single risk pool for all their qualified health plans (Sect. 1312(c)(1)) can be waived. In what Timothy Jost, Professor of Law at Washington and Lee, calls "the enigmatic footnote 5," the checklist more or less encourages states to do so:
5 For example, a state could waive Section 1312(c)(1) related to the individual market single risk pool in connection with implementation of a state-operated reinsurance program. Section 1312(c)(1) requires a health insurance issuer to consider “all enrollees in all health plans….offered by such issuer in the individual market…to be members of a single risk pool.” In its waiver application, the State would be required to explain how waiver of the single risk pool provision would facilitate the operations of and/or requirements for participation in the State’s reinsurance program or high risk pool and/or mechanism for a high risk pool in its individual insurance market in terms of its decision to implement its reinsurance program. For example, a state might explain how in order to maximize the rate-lowering impact of their proposal, the state would like to waive the single risk pool provision at 45 CFR 156.80 to the extent it would otherwise require excluding total expected state reinsurance payments when establishing the market wide index rate.
Neither Jost nor Bagley can make head or tail of this -- and if they can't, who can? I have a query into CMS and will report if I get clarification. I asked Jost if this might envision a program in which insurers effectively set up their own invisible risk pool,s offering earmarked enrollees coverage on the same terms as everyone else, but seeking state/federal funding for the tagged invisibles. His response: "That isn’t exactly what it says, but might be what they were thinking."
Our Kremlinology is in its early stages. Standing by for CMS clarification...
---
Update, 5/19, 4:15 p.m.: I have been offered some clarification from Timothy Jost. Basically, the state would seek to waive the requirements of the single risk pool regulation so that each insurer can exclude state payments for reinsurance or invisible risk programs from the calculation of its index rate. That is, payments that cover the claims of the most expensive enrollees are excluded from the calculation of how much revenue the insurer needs per enrollee. In effect, those covered by state invisible risk or reinsurance payments are in a risk pool of their own for the purposes of rate-setting, though they receive insurance on the same terms as everyone else in the plans in which they enroll. That's my translation of this from Jost re Footnote 5:
A state has to request a waiver of something in the ACA to get a 1332 waiver, and without a 1332 waiver a state cannot get access to federal pass through funding for a reinsurance program. The single risk pool requirement under 45 cfr 156.80 allows for adjustment of the index rate based on federal risk adjustment payments and user fees. Under footnote 5, a 1332 waiver could also allow the index rate to be based on adjustments for state reinsurance payments. So a state can ask for a waiver to the 156.80 requirements to allow it to take state reinsurance payments into account in setting the index rate, and thus qualify for a 1332 waiver and APTC and CSR pass throughs.
Update, 9/25/17: Back in May, I neglected to add that CMS confirmed this interpretation on May 22. It's newly relevant, as ambiguously worded allowance for multiple risk pools in yesterday's updates to Graham-Cassidy may be for this purpose.