Section 1332 of the Affordable Care Act (ACA) provides for “state innovation waivers.” The Senate bill that became the ACA recognized a central role for the states in health reform. It preserved state regulation of insurance and encouraged states to establish exchanges (while also establishing, as the Supreme Court has recognized, equally competent federal exchanges).
Recognizing that the problems of our health care system were national in scope and needed a national solution, Congress adopted a national program for reforming insurance markets and for encouraging enrollment through premium tax credits and a national individual mandate. But Congress also recognized that states might have innovative reform ideas; it accordingly provided that, beginning in 2017, once the national reforms were established, states that could propose reforms equally as effective as those in the ACA could receive waivers to strike out on their own.
On July 22, 2015, CMS created a webpage to provide information on the 1332 program. The webpage contains the proposed and final (2012) regulations on the procedures to be followed for applications, application review, and reporting under the 1332 program. It also contains a fact sheet and set of frequently asked questions which basically summarize the provisions of the earlier regulation.
The FAQ, for example, addresses questions with respect to:
- What is a state innovation waiver? (see above)
- What provisions of the ACA can be waived pursuant to a 1332 waiver? Provisions relating to qualified health plans, including the essential health benefits and actuarial value requirements; exchanges; premium tax credits and cost sharing reduction payments; the individual mandate; and the employer mandate.
- How do states apply? States apply to HHS at stateinnovationwaviers@cms.hhs.gov.
- Who can states contact to ask questions? (same as above)
- Do states have to apply to each relevant agency separately? No, they apply to HHS.
- When must states submit applications and how long will approval take? States may submit after a public notice and comment period. HHS has 45 days to determine whether an application is complete and then up to 180 days to make a final decision.
- What guidance and regulations exist? (see above)
- What do states need to include with their application? States need to include a list of provisions they want waived; data, assumptions, targets, and other information supporting the application; actuarial analyses supporting their assumptions as to comprehensiveness of coverage; a detailed 10-year budget; a detailed analysis of the impact of the waiver on health insurance coverage; state legislation supporting the waiver; and a detailed implementation plan and timeline.
The website does not include regulations or guidance describing the criteria under which the agencies will evaluate waiver requests. This will presumably show up on the webpage at some point.
ACA Litigation: Paying For Abortion Coverage
Also on July 21, 2015, Judge Christina Reiss of the federal district for Vermont entered a judgment dismissing most of the claims in Howe v. Burwell. Alan Howe is a resident of Vermont opposed on religious grounds to abortion. Coverage of abortion was one of the most contentious and last resolved issues in the debate over the ACA. The final Senate compromise, which was adopted as part of the ACA, clarified that premium tax credits could not be used to pay for abortions that could not otherwise be paid for by federal programs. (Federal funds can only pay for abortions in cases of rape or incest, or when the mother’s life is at stake).
To ensure that no federal funds are used to pay for other abortions, insurers that cover non-federally funded abortions must set up segregated accounts to cover the cost of abortions; funds in these accounts must be taken from the enrollee’s premium rather than from the tax credit (at least one dollar from each enrollee).
While this avoids having federal funds pay for abortions, it means that individuals who purchase insurance that covers abortions must pay at least one dollar into a separate account specifically designated for abortion, something that is abhorrent to them. In most states this is not an issue. The ACA allows states to completely outlaw abortion coverage in marketplace plans, and 24 states have done so. In seven more states, no marketplace plans are available with abortion coverage. In most other states, at least one plan is available that does not cover abortion.
In three states, however, including Vermont, no marketplace plans are available that do not cover abortion. This should be a temporary situation. At least one multi-state plan is supposed to be offered that does not cover non-federally funded abortion in each state. But the multi-state plan program is still in a transitional stage, and in Vermont no multistate plan is yet available. Indeed, no individual coverage is apparently available in Vermont that does not cover abortion. Thus the conundrum of Mr. Howe.
Howe sued the federal Health and Human Services, Labor, and Treasury Departments and the head of Vermont’s health insurance exchange, alleging violations of the Religious Freedom Restoration Act (RFRA), the Vermont Constitution, and the First Amendment’s Free Exercise and Free Speech clauses. Mr. Howe’s basic beef, however, is not with the federal or state governments, but rather with the Vermont Blue Cross and Blue Shield plan, which is not interested in offering plans that do not cover abortion. The government defendants have no problem with Blue Cross offering abortion-free plans—indeed one senses that they would have been pleased if it would—but they had no authority to make it do so.
The court threw out virtually all of Mr. Howe’s claims. The court dismissed the Vermont constitutional claim against the Vermont exchange because the Eleventh Amendment bars suits against states under state law in federal courts. It threw out the First Amendment claims because the defendants had not violated the First Amendment. The court also dismissed most of the RFRA claims because, again, it was not the federal or state agencies that had burdened Mr. Howe’s religious freedom but rather the insurer, which is not subject to RFRA.
The court, however, refused to dismiss Mr. Howe’s RFRA claim that the agencies would substantially burden his free exercise of religion if they enforced the fund segregation requirement against any health plan that was willing to offer Mr. Howe coverage without separating out part of his premium to cover abortion. It held that the federal defendants could “plausibly be deemed responsible” for the insurer’s insistence on segregating funds if it threatened the insurer with an enforcement action. The federal government had already said it was willing to forgo enforcement of the segregation requirement so the court did not enter a preliminary injunction. The court, moreover, did not enter a final judgment for the plaintiff on this claim, but will rather hear the case further.
Earlier this year, a lawsuit challenging the lack of availability of an insurance plan that did not cover abortion in Rhode Island was dismissed voluntarily when Rhode Island agreed to require all insurers that offer plans in the individual market to offer plans that do not cover abortion. That leaves only Vermont, New Jersey, and Hawaii as states where marketplace plans that do not cover non-federally funded abortion remains unavailable. As stated earlier, marketplace plans that do cover non federally-funded abortion remain unavailable in 31 states.
Eighth Circuit Court of Appeals Rules On Wieland v. HHS
In another development, the Eighth Circuit Court of Appeals in Wieland v. Department of Health and Human Services (HHS) held that the plaintiff (a Missouri state legislator) had standing to challenge the federal contraceptive coverage regulation which allegedly kept his state employee group health plan from allowing him to refuse contraceptive coverage in accordance with his religious beliefs.
The district court had dismissed the case, holding that the plaintiff was not directly injured by the federal contraceptive regulation because the state and its health care plan had independently decided to offer contraceptive coverage and thus the federal government was not responsible for any injury claimed by the plaintiff.
The Eighth Circuit held that in fact Missouri state law had earlier allowed employers and employees to opt out of contraceptive coverage based on their religious beliefs, but that a 2013 federal court judgment had invalidated that law as preempted by federal requirements. The Eighth Circuit called that earlier decision into question because of the intervening Supreme Court decision in Hobby Lobby, which allowed closely held companies to opt out of contraceptive coverage. But the court further held that, but for the federal regulation, the state plan would continue to allow employees to opt out of contraceptive coverage. Thus the plaintiff had standing to challenge the federal regulation which directly caused his injury.
The Wieland case would seem to open a new beachhead in the contraceptive coverage wars, permitting individuals—in addition to religious organizations and closely held corporations—to bring Religious Freedom Restoration Act challenges against the contraceptive coverage requirement. The argument for standing in Wieland, however, turned on a specific state law permitting individuals to opt out of contraceptive coverage, and opt-out laws like Missouri’s are uncommon.
Moreover, the Eighth Circuit did not reach the merits of the plaintiff’s claim, which it remanded to the lower court.
CMS Offers Recommendations To State Insurance Commissioners Regarding Premium Rate Increases
On July 21, 2015, the Centers for Medicare and Medicaid Services (CMS) announced that it was sending state insurance commissioners a letter offering recommendations with respect to their review of premium rate increases requested by insurers for 2016. States are primarily responsible both under preexisting state and federal law and under the Affordable Care Act (ACA) for reviewing rates proposed by health insurers in the individual and small group markets.
As of January 1, 2014, 49 states and three U.S. territories had “effective rate review programs” in at least one market, and thus were primarily responsible for reviewing “excessive” rate increase requests — that is rate increases exceeding 10 percent in the individual and small group market. CMS has retained some rate review authority for excessive premium increase requests in five states and two territories. State authority to review health insurance rates varies significantly from state to state, however, with some states requiring prior approval of rates, some allowing insurers to “file and use” rates subject to retroactive disapproval, and some states having no explicit authority to disapprove proposed rates.
States are now in the midst of reviewing health insurer premium requests for 2016. Under the timeline required by HHS, insurers must have filed their rate review requests in most states by May 15 and states must approve final rates by August 25.
There has been a great deal of media coverage of large rate increase requests from some insurers offering marketplace plans. Much of the information available on 2016 rate increases, however, comes from insurer filings specifically involving “excessive” rate increases only — those exceeding 10 percent which were made public on June 1.
It is likely that final rate increases in most states will be smaller, although some states are likely to see significant increases. (It should also be remembered that individuals receiving premium tax credits may well have premium increases covered by their tax credit rather than having to pay the increased premium themselves, although they may have to switch to a less expensive plan to ensure this benefit).
The letter to state insurance commissioners asks them to consider several factors in reviewing rates:
- Consumers who have recently signed up for coverage, CMS asserts, are healthier than those who signed up during the first open enrollment period. Moreover, risk pools are likely to improve during the remainder of 2015 and into 2016, while pent-up demand for health care from the initial 2014 enrollees should decrease. The increased 2015 individual responsibility penalty is likely to drive more healthy individuals into the market.
- Recent data, according to CMS, shows that medical cost trend remains moderate even accounting for increased pharmaceutical costs.
- As earlier announced, CMS will use a 100 percent coinsurance rate for the 2014 reinsurance program. This should help cover any 2014 losses insurers may have incurred, although it does not protect them going forward.
- CMS continues to assert that it will make full risk corridor payments for 2014 to insurers. The amount of these payments should be known by August 14, before the final August 25 approval date.
- Public hearings for rate requests may be helpful.
One other consideration that is not listed, but I hope states take into account, is that the current rate requests were filed before the Supreme Court’s decision in King v. Burwell was known, and undoubtedly reflect the considerable uncertainty that that litigation introduced into insurance markets. With the claims raised in that case finally disposed of, insurers should be able to face 2016 with greater security.
The letter concludes by reminding states that both consumer affordability and insurer solvency are issues in rate approval. Oregon’s insurance commissioner, Laura Cali, recently required insurers that had not proposed rate increases to increase their rates anyway to ensure that the insurers remained solvent.
It is likely, however that insurers in other states will be asked to reduce their premium increases to ensure affordability.
I would expect that insurance commissioners were already aware of the issues raised by this letter. But the letter does communicate to the media, which have eagerly reported large rate increase proposals where they have occurred, that there is some reason to be hopeful that 2016 rate increases will be more moderate than first reported.
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