//  12/7/18  //  In-Depth Analysis

The Affordable Care Act reformed the individual health insurance market to protect persons with pre-existing conditions.  Insurers who participate in this market must sell plans with a standard set of comprehensive benefits, and may not deny coverage to, or impose higher premiums on, persons with pre-existing conditions.  Through legislative, regulatory, and litigation efforts, the Trump Administration has sought to depart from the ACA’s regime to allow the sale of plans that are medically-underwritten plans, offer more limited health benefits, or both.  The Administration’s latest such effort comes in the form of guidance by the Departments of Treasury and Health and Human Services that adopts a broader reading of the Act’s provision for state innovation waivers.  The agencies read the provision to permit states to seek waivers that would promote plans that lack the Act’s consumer protections.  See State Relief and Empowerment Waivers, 83 Fed. Reg. 53,575 (Oct. 24, 2018).  HHS has recently supplemented that guidance with a discussion paper that describes a series of “concepts” for waivers that states could seek, including waivers under which a state could authorize – and potentially subsidize – the sale of medically-underwritten plans.  Centers for Medicare & Medicaid Services, Section 1332 State Relief and Empowerment Waiver Concepts: Discussion Paper (Nov. 29, 2018). 

The statute on which the agencies rely – section 1332 of the Affordable Care Act, 42 U.S.C. § 18052 – permits states to apply for waivers of some, but not all, of the ACA’s core coverage provisions.  (Notably, the Act’s pre-existing condition protections are not waivable).  Section 1332 imposes strict guardrails on this waiver process, requiring a state to show that its alternative plan would not raise the federal deficit, and would provide coverage that is as affordable and comprehensive as the coverage provided under the ACA, to at least as many of its residents as would be reached under the Act.  Medically-underwritten plans do not offer affordable, comprehensive coverage to all comers, so it is difficult to imagine how a waiver that promotes the sale of these plans could meet the statutory guardrails.  But the Trump Administration now reads Section 1332 to permit a waiver so long as a state would simply make comprehensive, affordable coverage available to its residents, even if many state residents would be steered instead to plans that offer more limited coverage.  The Administration’s reading cannot be squared with the text of either section 1332 or the ACA as a whole.  If the agencies proceed to approve a state’s application for a waiver in reliance on the interpretation of Section 1332 described in their guidance and discussion paper, the approval would almost certainly be set aside by a reviewing court.

The Affordable Care Act

Title I of the ACA was enacted to deliver “quality, affordable health coverage for all Americans.”  Patient Protection and Affordable Care Act, 124 Stat. 119, 130 (2010).  The Act aims to accomplish this goal by amending the Public Health Service Act to prohibit insurers on the individual health insurance market from denying coverage, excluding benefits, or charging higher rates based on a person’s medical condition or history.  See 42 U.S.C.  §§ 300gg to 300gg-4.  Plans sold on the individual market must cover a statutorily-defined set of essential health benefits (EHBs) that must offer benefits equivalent to those offered under a “typical employer plan.”  42 U.S.C. §§ 300gg-6(a); 18022(a), (b)(2).  The Act also provides subsidies for the purchase of insurance in the form of premium tax credits for low- and middle-income individuals, 26 U.S.C. § 36B, as well as cost-sharing reductions that provide protection for lower-income insureds against out-of-pocket expenses such as deductibles, coinsurance, and copays, 42 U.S.C. § 18071. 

  Within Title I of the ACA, Subtitle D sets forth the rules for the states or the federal government to establish Exchanges, that is, on-line marketplaces on which insurers offer ACA-compliant plans.  Subtitle D sets forth the requirements for a “qualified health plan” to be eligible to be offered on an Exchange, 42 U.S.C. § 18021, defines the “qualified individual” (with limited exceptions, any resident of a state) who is eligible to buy an Exchange plan, 42 U.S.C. §  18024, and establishes the requirements for the Exchange’s operations, 42 U.S.C. §§ 18031, 18041.  An individual must purchase insurance through an Exchange to be eligible for tax credits or cost-sharing reductions.  26 U.S.C. § 36B; 42 U.S.C. § 18071.

State Innovation Waivers under Section 1332 of the Act

In order to promote “state innovation,” section 1332 of the ACA permits a state to apply to waive certain of the Act’s provisions.  42 U.S.C. § 18052.  This waiver authority is limited; only certain provisions in Subtitle D, as well as the Act’s subsidy and tax penalty provisions, are subject to waiver under this provision.  42 U.S.C. § 18052(a)(2).  The remainder of the Act’s provisions, including the guaranteed-issue and community-rating requirements that require insurers to offer comprehensive coverage to individuals without regard to their medical conditions, are not waivable.  A state that is granted a “state innovation waiver” may receive pass-through funding to administer its plan, in an amount equal to what the federal government would otherwise have expended on premium tax credits, cost-sharing reductions, and small employer tax credits for the state’s residents.  42 U.S.C. § 18052(a)(3).

The ACA imposes strict conditions of eligibility – popularly known as “guardrails” -- that a state must meet before its application for a waiver may be approved.  The statutory language describing the guardrails bears quoting in full:

The Secretary may grant a request for a waiver under subsection (a)(1) only if the Secretary determines that the State plan--

(A) will provide coverage that is at least as comprehensive as the coverage defined in section 18022(b) of this title and offered through Exchanges established under this title as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services based on sufficient data from the State and from comparable States about their experience with programs created by this Act and the provisions of this Act that would be waived;

(B) will provide coverage and cost sharing protections against excessive out-of-pocket spending that are at least as affordable as the provisions of this title would provide;

(C) will provide coverage to at least a comparable number of its residents as the provisions of this title would provide; and

(D) will not increase the Federal deficit.

42 U.S.C. § 18052(b)(1).  The state must also demonstrate that it has enacted a law that provides for the implementation of its proposed plan.  42 U.S.C. § 18052(b)(2).  The granting of a waiver is discretionary, even if the state’s proposed plan would comply with the statutory guardrails. 

Treasury and HHS issued guidance addressing the substantive standards for a Section 1332 waiver in 2015.  Waivers for State Innovation, 80 Fed. Reg. 78,131 (Dec. 16, 2015).  The agencies read the statute to impose strict standards for a state to satisfy before its waiver application would be approved; an alternative state plan could be approved only if as many, or more, of its state residents would be enrolled in coverage that is at least as comprehensive and affordable as coverage available under the ACA.  Despite the strictness of these standards, eight states have been granted waivers under Section 1332 to date.  In December 2016, Hawaii received a waiver from the ACA’s requirements that the state operate a small business health options program, or SHOP, Exchange.  In 2017 and 2018, under the new Administration, seven states received waivers to operate reinsurance programs for insurers in their individual markets.  In contrast, more ambitious waiver applications have not been approved.  Iowa, for example, submitted a proposal to use a Section 1332 waiver to replace the ACA’s system of subsidies and cost-sharing reductions with a state-run subsidy system that would vary by age and income.  There was considerable doubt whether Iowa’s proposal met the statutory guardrails and the 2015 guidance; Iowa withdrew its application in October 2017 after Treasury and HHS failed to act on it as quickly as Iowa had hoped.

2018 Guidance  

Treasury and HHS have now revoked their prior guidance, and have issued revised Section 1332 guidance that appears to be designed to ease the approval of state waiver applications similar to the one submitted by Iowa last year.   See State Relief and Empowerment Waivers, 83 Fed. Reg. 53,575 (Oct. 24, 2018).  The agencies now read the statutory guardrails to “focus on the nature of coverage that is made available to state residents (access to coverage), rather than on the coverage that residents actually purchase.”  Id. at 53,578.  That is to say, the agencies contend that a state plan would meet the statutory guardrails so long as comprehensive, affordable coverage is available to state residents, whether or not those residents actually obtain that coverage.  As the agencies describe the statute:

Section 1332(b)(1)(C) requires that a state's plan under a waiver will provide coverage “to at least a comparable number of its residents” as would occur without the waiver. By contrast, section 1332(b)(1)(A) and (B) merely state that the state's plan will provide coverage that is as comprehensive and affordable as would occur without a waiver, but do not specify to whom such coverage must be provided.

Id. As the agencies read the statute, “a state plan will comply with the comprehensiveness and affordability guardrails, consistent with the statute, if it makes coverage that is both comprehensive and affordable available to a comparable number of otherwise qualified residents as would have had such coverage available absent the waiver.”  Id. (emphasis added).  The agencies specified that the comprehensiveness and affordability findings would “focus on the aggregate effects of a waiver”; whereas the 2015 guidance sought to ensure that particular demographic groups would not be disadvantaged by a waiver, the new guidance would approve a waiver that meets the statutory guardrails as a whole, even if particular groups within a state lose comprehensive or affordable coverage.  Id.

The agencies acknowledged that Section 1332(b)(1)(C) requires the state plan to provide coverage to at least as many residents as would be covered absent the waiver.  “However,” the agencies reasoned, “the text of the coverage guardrail provision of the statute is silent as to the type of coverage that is required.  Accordingly, to enable state flexibility and to promote choice of a wide range of coverage to ensure that consumers can enroll in coverage that is right for them, this guidance permits states to provide access to less comprehensive or less affordable coverage as an additional option for their residents to choose.”  Id.   The agencies specified that “[t]o meet the coverage requirement, the section 1332 state plan must provide meaningful health care coverage to a comparable number of its residents as title I of PPACA would provide.”  Id. at 53,579.  The 2015 guidance had specified that the coverage provided under a waiver must qualify as “minimum essential coverage” under 26 U.S.C. § 5000A; the new guidance expands the definition to include arrangements that would not meet the statutory definition of minimum essential coverage, including, for example, short-term, limited-duration insurance.  Id.  (Because short-term, limited-duration insurance is intended to serve as temporary coverage as an individual makes the transition from one comprehensive plan to another, it is exempt from the ACA’s market reforms.  In a separate rulemaking, the Administration has defined plans lasting up to 364 days, and renewable for up to three years, as “short-term.”  That rule has been challenged in pending litigation.  Ass’n for Community Action Plans v. U.S. Dep’t of Treasury, No. 18-cv-2133 (D.D.C.).) 

The agencies loosened the comprehensiveness guardrail in another respect.  The statute requires that comprehensiveness be determined by comparing the benefits provided under the state plan to the benefits provided under coverage in the absence of a waiver.  Under separate regulations, however, HHS has accorded states with the flexibility to adopt any other state’s benchmark for essential health benefits as their own.  The agencies rely on that regulation to declare that a state may satisfy the comprehensiveness guardrail by showing that the state’s plan provides access to coverage that is as comprehensive as would be available in the absence of a waiver under the state’s current EHB benchmark, or as would be available if the state were to adopt “any other state's benchmark plan chosen by the state for purposes of the waiver application, or any benchmark plan chosen by the state that the state could otherwise build that could potentially become their EHB-benchmark plan.”  Id.

The agencies also set forth five principles that they intended to apply in exercising their discretion whether to approve a state’s application for a Section 1332 waiver.  They specified that a waiver application should advance some or all of the following principles:  the state plan should (1) “[p]rovide increased access to affordable private market coverage,” which the agencies defined to include coverage provided by association health plans or by short-term, limited-duration insurance; (2) “[e]ncourage sustainable spending growth,” for example by eliminating regulations that limit market choice; (3) “[f]oster state innovation”; (4) “[s]upport and empower those in need”; and (5) “[p]romote consumer-driven healthcare” by, for example, creating “incentives that encourage consumers to seek value.”  Id. at 53,577. 

HHS has also issued a discussion paper that described a set of four concepts that the agency encouraged states to pursue in preparing Section 1332 waiver applications.  Centers for Medicare & Medicaid Services, Section 1332 State Relief and Empowerment Waiver Concepts: Discussion Paper (Nov. 29, 2018).  First, HHS stated that it would look favorably on proposals for “state-specific premium assistance” that would establish a “new state-subsidy structure that changes the distribution of subsidy funds compared to the premium PTC structure.”  Id. at 8.   A state could, for example, seek to replace the ACA’s income-based subsidies with a system of age-based credits, similar to the one that Iowa had proposed in its 2017 application.  Second, a state could seek a waiver for “adjusted plan options” so as to provide state financial assistance for non-QHPs.  Id. at 13.  Under this option, a state could seek to authorize (and even subsidize) the sale of plans that do not meet the ACA’s requirements for guaranteed issue or for essential health benefits.  Third, a state could seek to establish “account-based subsidies” in order to direct subsidies into defined-contribution accounts, in place of the ACA’s defined-benefit structure.  Id. at 20.  Fourth, a state could pursue “risk-stabilization strategies,” such as the reinsurance proposals for which several states have already gained waivers, or proposals for high-risk pools.  Id. at 25. 

HHS reiterated the interpretation of the statutory guardrails that it had described in the 2018 guidance; a state plan would meet the statute, in HHS’s view, if it made comprehensive, affordable coverage available to state residents, even if fewer people actually obtain such coverage.  HHS cautioned, however, that it would need to receive a specific proposal from a state before it could assess whether Section 1332 was satisfied, and it emphasized that a waiver proposal must ensure that comprehensive, affordable coverage remains available to state residents.  There is, at a minimum, substantial doubt as to whether some of the concepts that HHS described in the discussion paper could meet even the agencies’ newly-announced interpretation of Section 1332; it is questionable whether state residents would continue to have access to the same level of comprehensive, affordable health coverage under a waiver that siphons off healthy people from the risk pool, as HHS appears to be contemplating.     

The 2018 Guidance’s “Availability” Standard Likely Cannot Be Reconciled with the Statutory Guardrails  

The Trump Administration’s reading of the Section 1332 guardrails is not a plausible one.  For purposes of the coverage guardrail in Section 1332(b)(3), the Administration (properly) acknowledges that the requirement for a state plan to “provide coverage” to its residents would be met only if at least as many state residents actually “will have health care coverage” under the plan as they would absent a waiver.  83 Fed. Reg. at 53,579.  But the Administration asserts that the requirement in Section 1332(b)(1)(A) and (b)(1)(B) that the state plan “provide coverage” that is affordable and comprehensive would be met if such coverage is simply available to state residents, whether or not they actually are covered.  The Administration’s reading, then, depends on its assumptions that the “coverage” to be provided as specified in paragraph (b)(1)(C) is a different creature from the “coverage” to be provided under paragraphs (b)(1)(A) and (B), and that the act of “provid[ing]” coverage described in the third paragraph is something different from the act of “provid[ing]” coverage described in the first two paragraphs. 

The statutory language does not support either assumption.  “[T]he normal rule of statutory interpretation,” after all, is “that identical words used in different parts of the same statute are generally presumed to have the same meaning.”  IBP, Inc. v. Alvarez, 546 U.S. 21, 33-34 (2005) – a rule that the Supreme Court has reaffirmed repeatedly, as recently as last year.  See Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1723 (2017).  And Section 1332 doesn’t simply use the phrase “provide coverage” in disjointed passages throughout the statute.  Instead, in quick succession in three adjoining clauses, Section 1332 requires a state seeking a waiver to “provide coverage” that is comprehensive, affordable, and that reaches at least as many residents as would be covered absent the waiver.  42 U.S.C. § 18052(b)(1)(A), (B), (C).  “’[T]he presumption that a given term is used to mean the same thing throughout a statute’” is “’surely at its most vigorous when a term is repeated within a given sentence.’”  Mohamad v. Palestinian Auth., 566 U.S. 449, 456 (2012) (quoting Brown v. Gardner, 513 U.S. 115, 118 (1994)).

The most natural reading of Section 1332, then, is that a state waiver could be approved only where the state shows that at least as many of its residents would actually have coverage – not merely have access to coverage – that is as affordable and comprehensive as what those residents would have under the ACA.   This is how Section 1332’s primary sponsor, Senator Ron Wyden, envisioned that the statute would operate:

If States think they can do health reform better than under this bill, and they cover the same number of people with the same comprehensive coverage, they can get a waiver exempting them from the legislation and still get the Federal money that would have been provided under the bill.

155 Cong. Rec. S13796, S13853 (Dec. 23, 2009) (Sen. Wyden) (emphases added).

To be sure, the presumption that Congress intends to use the same term to have the same meaning throughout a statute is not an absolute one.  “Context counts,” Envtl. Def. v. Duke Energy Corp., 549 U.S. 561, 576 (2007), and in some instances the larger context of a statute may show that Congress used a particular term in different ways throughout a statute.  Here, though, the larger structure of the Affordable Care Act only serves to confirm that Congress wrote Section 1332 using language in the same way that an ordinary speaker of English language would – the comprehensive, affordable “coverage” that must be “provide[d]” under the state plan is the same coverage that must reach at least as many residents who would obtain comprehensive coverage under the ACA absent a waiver.  Section 1332 is part of Title I of the ACA, which as noted above, was enacted to provide “Quality, Affordable Health Care for All Americans.”  124 Stat. 130.  “All Americans,” the statute declares, would gain “quality health insurance coverage” (Subtitle C), that is “available” (Subtitle D) and “affordable” (Subtitle E).  Section 1332, when read together with the rest of Title I, establishes a floor against which to judge a state’s waiver application; the Act requires comprehensive, affordable coverage to extend to as many of a state’s residents as possible, and a state may gain a waiver if it can prove that its alternative scheme will better accomplish the Act’s purposes.  In short, Section 1332 was enacted as a safeguard to fulfill the ACA’s goals, not as a tool for a state government to use to render the Act’s core protections inoperative.

What is more, Section 1332(b)(1)(A) does not require a state simply to show that its alternative system will provide “comprehensive” coverage; more precisely, the state must show that it will provide coverage “at least as comprehensive as the coverage defined in [42 U.S.C. § 18022(b), the essential health benefits provision] and offered through Exchanges established under this title as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services based on sufficient data from the State and from comparable States about their experience with programs created by this Act and the provisions of this Act that would be waived.”  42 U.S.C. § 18052(b)(1)(A).  The statute, on its face, requires an actuarial analysis, based on real data, comparing the scope of coverage that state residents would receive under the waiver to that they would receive without a waiver.  Under the Trump Administration’s new reading of the statute, however, the CMS Actuary would conduct this careful review simply to describe the scope of the benefits under a hypothetical plan that would be available to a state resident, but that resident would not necessarily use.  This would be a waste of the Actuary’s time.  Courts, however, do not ordinarily “assum[e] that Congress imposed useless procedural safeguards,” Idaho Conservation League v. Mumma, 956 F.2d 1508, 1516 (9th Cir. 1992), or that Congress required parties to engage in “empty gesture[s],” Fund for Animals, Inc. v. Kempthorne, 472 F.3d 872, 878 (D.C. Cir. 2006).

The Trump Administration’s reading of Section 1332 is suspect in an additional respect.  “Coverage” is an important concept in the Affordable Care Act, and Congress took care to specify the kinds of coverage that qualify as “minimum essential coverage” for the Act’s purposes, including insurance sold on the individual health insurance market that complies with the Act’s consumer protections.  26 U.S.C. § 5000A(f).  In the last Administration, HHS and Treasury recognized that Congress used the term “coverage” in Section 1332 to refer to the statute’s list of the types of plans that qualify as minimum essential coverage.  The Trump Administration, however, proposes to expand the definition of “coverage” to include short-term, limited-duration insurance, which is exempt from the Act’s consumer protections, and which neither qualifies as minimum essential coverage nor meets the statutory definition in the Public Health Service Act of “individual health insurance coverage.”  42 U.S.C. § 300gg-91(b)(5).  The Administration refers, not to any statute, but to a regulatory definition of health coverage that does incorporate STLDI.  45 C.F.R. § 144.103.  That regulation, however, does not relate to any of the ACA’s provisions, but instead was adopted in 1997 to provide that STLDI would count as creditable coverage under a separate statute, HIPAA.  It is not persuasive for the Administration to substitute a regulatory definition of coverage under a different statute for the Affordable Care Act’s own, carefully circumscribed usage of that term. 

One final point bears noting.  If HHS and Treasury proceed to approve a state’s application for a waiver after going through the statutory notice-and-comment process, the agencies will likely claim that their interpretation of the statute should receive deference under the doctrine of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), in which courts ordinarily assume that Congress intended to delegate to executive agencies the authority to resolve any ambiguities in a statutory scheme that those agencies administer.  No deference should be accorded to such an approval; the Supreme Court effectively resolved this question in King v. Burwell, 135 S. Ct. 2480 (2015).  The question in that case was whether the ACA’s tax credits were available in states that had opted not to establish their own Exchanges.  The Supreme Court held that they were, but decided the question on its own rather than deferring to Treasury’s views on the question.  The Court noted that “[t]he tax credits are among the Act's key reforms,” and the question of whether the credits would be available was “a question of deep economic and political significance that is central to [the ACA’s] statutory scheme.”  Id. at 2488-89.  The same logic applies here; whether the statutory standards are met for a state to waive the ACA’s consumer protections, and to redirect the Act’s tax credits and other subsidies away from the Act’s intended recipients, is a question of central importance to the Act’s statutory scheme that should be resolved by the courts, not executive agencies.  And, for the reasons discussed above, the answer to that question should be that a Section 1332 waiver is available only if a state can show that its alternative system would expand the reach of comprehensive, affordable health coverage to its residents.


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