The Time Is Now: Why States Need to Start Thinking About 2017 State Innovation Waivers

03/18/2015 11:33 am ET | Updated May 18, 2015

The Waiver for State Provision in Section 1332 of the Affordable Care Act (ACA) -- also known as the 2017 State Innovation Waiver -- provides state leaders with the opportunity to design and implement innovative and cost-saving strategies for their public health insurance programs. The waivers provide states with the incentive and means to re-imagine those programs in ways that better reflect their policy goals, state demographics, budgetary constraints and political culture.

Though 2017 may seem a ways out, the path toward achievement of such waivers is complex and involves significant policy, operational and political considerations. States should be thinking now about how to take advantage of the discretionary authority available to them, and health program innovators should be engaging in discussions about the best way to take advantage of this opportunity.

Supporting State Innovation
For many years, governors across the country have proposed unique, innovative and cost-effective ways to provide public health insurance coverage to their citizens, especially within their Medicaid programs. These initiatives, implemented through waivers provided from the Centers for Medicare & Medicaid Services (CMS) under Section 1115 of the Social Security Act, expand access and affordability in ways that are tailored to the unique needs of each specific state. Each time a state submits a waiver, it is proposing its own approach for how its public health insurance programs can work better. Every state has at least one of these Medicaid-related waivers and most states operate several waivers simultaneously, often with great results.

The ACA includes a provision that gives states a major incentive to design new approaches to their Medicaid program and to rethink how the federal funding that supports Medicaid, the Children's Health Insurance Program and exchange subsidies (Insurance Affordability Programs) might be more effectively spent on a state-designed program. The 2017 State Innovation Waiver provision provides states with the option to propose new designs for providing health insurance coverage to their citizens using methods that diverge from the ACA's overall plan, if they can demonstrate that they provide affordable, comprehensive coverage to at least as many people as could have been covered otherwise under the ACA -- without costing the federal government any additional money.

It's an interesting and complex challenge. A few weeks ago, I hosted a panel of some of the foremost subject matter experts on public health insurance programs as they discussed new approaches that states can take with the 2017 State Innovation Waiver for the design and operation of programs. They shared varying perspectives on approaches, illuminating both opportunities and challenges for states that pursue this path.

"Really the essence is state innovation. And it, at its core, permits state governments to use funding that would otherwise have gone to individuals and businesses to aggregate that funding to create different ways to cover people," said Krista Drobac, Partner at Sirona Strategies.

What a 2017 State Innovation Waiver Could Provide
The policy implications of the 2017 State Innovation Waiver are sufficiently broad to attract interest among a diverse array of states. "That's kind of the essence of the 1332," said Joel Ario, Managing Director at Manatt, Phelps & Philips, and previously the Director of the Office of Health Insurance Exchanges at the U.S. Department of Health & Human Services (HHS). "It's got bipartisan roots that allow the states to experiment."

Much of this interest focuses on how the waivers might address some of the ACA's greatest challenges, such as:

  • "Churning" of individuals between primary programs as their incomes, family size and employment situation change, which can impact an individual's continuity of care and is a particular concern in states that expanded their Medicaid programs under the ACA.
  • Stratification of families for health insurance purposes, with some members qualifying for the exchange, and others for Medicaid or CHIP, which can lead to continuity of care difficulties within a family because of varying provider networks.
  • The inequity of the employee-only Employee Sponsored Insurance (ESI) affordability test, in which individuals and families with access to ESI do not qualify for exchange subsidies, except in rare situations (sometimes called the "family glitch").
  • The incentive for employers with disproportionate numbers of low-income employees to drop coverage because their employees can get subsidized coverage in the exchange.
  • Problematic technology, operations and communication links between the exchange, Medicaid and CHIP programs.
  • Complex rules and guidance that can prevent or inhibit states from pursuing program policies they find attractive, such as greater beneficiary financial participation and incentives for healthy behavior.

"This waiver is kind of the super waiver, the mega waiver, because it allows you to do so many things differently than in the past," said Dennis Smith, Managing Director at McKenna, Long & Aldridge, and formerly the Director of the Center for Medicaid and State Operations at CMS.

Considerations for States
Some feel that the waivers offer an opportunity for states to reintroduce policy innovation into their health insurance programs. "There are states that are out there that were working on innovation, working on areas and had policy goals for what they wanted to achieve... for those states, [with 1332] there's an opportunity to, at least in some areas, take it back and begin to innovate," said Cindy Gillespie, Senior Managing Director at McKenna, Long & Aldridge.

But, before diving into proposing a waiver, state leaders should consider the following questions:

  • Should a waiver encompass each of the three primary insurance affordability programs -- Medicaid, CHIP and the exchange -- or be more limited in scope?
  • To what extent should the private market, including job-based benefits, be leveraged?
  • How can the eligibility breakpoints be re-configured to better protect continuity of care, reduce churn, and increase consumer engagement and loyalty?
  • How should eligibility and enrollment processes be streamlined and made more attractive to consumers?

"We want people to have coverage, and we want it to be affordable, given your circumstances in a particular state... what's the best way to do it? If it's Georgia, it's going to look different than New York City or Oklahoma. But we have those guardrails; those core principles that I think we have some national consensus around. And now we can go to work on 50 different models to achieve those goals," said Deborah Bacharach, Partner at Manatt, Phelps & Phillips.

What's Next?
The 2017 State Innovation Waiver is an invitation for state leaders to think boldly about how they want to help their citizens with accessing affordable health insurance. As funding for public health insurance programs becomes more complex and state leaders strive to shape programs that provide coverage for a greater number of citizens, the 2017 State Innovation Waiver may be the answer for both. It will be a journey, and a learning process, but with the end goal of achieving affordable, comprehensive and cost-effective coverage for citizens.

A state that is considering the merits of a State Innovation Waiver should begin by reviewing the federal rule that specifies the public input and transparency procedures they should follow. This 2012 rule also outlines the elements a waiver application should include, such as the ACA provisions the state intends to waive, an implementation timeline, actuarial estimates, and 10-year budget. To view this rule, please visit:this site.