RED ALERT: Seema Verma plays Thanos, decides to gut the ACA herself

2019 OPEN ENROLLMENT ENDS (most states)

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A month ago I posted a Red Alert about the latest regulatory attack on the ACA...this time coming directly from CMS Administrator Seema Verma. At the time, Verma had just announced a draft version of the new rules for Section 1332 Waivers...starting with changing the name from "State Innovation Waivers" to "State Relief and Empowerment Waivers", which sounds in no way like Orwellian doublespeak propaganda.

Here's the basic backstory on 1332 waivers:

One of the great strengths and dangers of the ACA is that it includes tools for individual states to modify the law to some degree by improving how it works at the local level. The main way this can be done is something called a "Section 1332 State Innovation Waiver":

Section 1332 of the Affordable Care Act (ACA) permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA.

State Innovation Waivers allow states to implement innovative ways to provide access to quality health care that is at least as comprehensive and affordable as would be provided absent the waiver, provides coverage to a comparable number of residents of the state as would be provided coverage absent a waiver, and does not increase the federal deficit.

State Innovation Waivers are available beginning January 1, 2017. State Innovation Waivers are approved for five-year periods, and can be renewed. Waivers must not increase the Federal deficit.

In other words, the ACA itself allows for individual states to experiment to some degree...but only as long as those experiments are proven to do at least as good a job of providing quality healthcare coverage, to at least as many people, without costing either the enrollees or the federal government more than the "vanilla" ACA provisions otherwise would.

When done in good faith and according to the spirit of the ACA, this can result in positive results, such as the reinsurance programs which a half-dozen states have implemented over the past year or so. In those cases, 1332 waivers allow states to leverage the power of the ACA's federal dollars to multiply the impact of state dollars.

In other cases, states like Vermont and Colorado have tried to use 1332 waivers for even bolder experiments in achieving Single Payer healthcare systems at the state level. Unfortunately, every attempt has failed so far for various reasons.

The downside of 1332 waivers, of course, is that defining what counts as being "at least as good" is highly subjective...and much of this depends on the judgment of whoever is running things at HHS and/or CMS. Which, at the moment, happens to be Trump appointees Alex Azar and Seema Verma respectively.

Again, at the time it was just a draft version of the new proposed rules. Today, CMS has posted the rules themselves...and they should set off klaxon alarms at every level (via Amy Goldstein of the Washington Post):

New insurance guidelines would undermine rules of the Affordable Care Act

The Trump administration is urging states to tear down pillars of the Affordable Care Act, demolishing a basic rule that federal insurance subsidies can be used only for people buying health plans in marketplaces created under the law.

According to issued Thursday by federal health officials, states would be free to redefine the use of those subsidies, which have since 2014 provided the first help the government ever has offered consumers to afford monthly insurance premiums.

States could allow the subsidies to be used for health plans the administration has been promoting outside the ACA marketplaces that are less expensive because they provide skimpier benefits and fewer consumer protections. Even more dramatically, states could let residents with employer-based coverage set up accounts in which they mingle the federal subsidies with health-care funds from their job or personal tax-deferred savings funds to use for premiums or other medical expenses.

This is utter, utter garbage. The whole point of ACA subsidies in the first place is that they're supposed to be used specifically for ACA-compliant policies...which are expensive without subsidies BECAUSE OF THOSE ADDED PROTECTIONS AND BENEFITS.

The new advice, called “waiver concepts” because they are ideas for how states could get federal permission to deviate from the law’s basic rules, stray from both of those goals. And it would allow states to set difference income limits for the subsidies — higher or lower than the federal one.

OK, this possibility--raising the income limit for subsidies--could be a positive thing, but only because the 400% FPL income cut-off was too low to begin with. If that was the only change (that is, if it was done without weakening the subsidy formula for anyone else, watering down the policy standards in any way, etc.), then I would welcome it, since I've been calling for the 400% FPL cap to be raised or removed for years now...HOWEVER, that should be done via actual legislation by Congress nationally. I'm 99% certain that there would be a massive, ugly catch attached to any such change for an individual state.

Oh, yeah...and it would likely be illegal and challenged in court as well:

The day before they were released by Seema Verma, administrator of the Department of Health and Human Services’ Centers for Medicare and Medicaid Services, an analysis by the Brookings Institution questioned the legality of the content and method of these concepts. The analysis by Christen Linke Young, a Brookings fellow and HHS alumni from the Obama administration, contends that “there are serious questions” about whether the changes are allowable under the law and that “at the very least, it is likely invalid” for CMS to issue the advice to states without going through the formal steps to change federal regulations.

Here's what would be allowed, according to the official press release:

  • Allows states to provide consumers with plan options that best meet their needs, while, at the same time, ensuring people, including those with pre-existing conditions, retain access to the same level of coverage available today without the waiver;

"Plan options that best meet their needs" is a big red flag. This likely goes right back into the whole "I'm a man so I don't need maternity coverage!" or "I'm not crazy so I don't need mental health coverage!" debate, which of course completely misses the point of how risk pools work in the first place.

  • Continues to require that a comparable number of people have coverage, but expands the definition of coverage to include more types of coverage, such as short-term plans;

Short-term plans, of course, are often junk and can discriminate against those with pre-existing conditions, which completely negates the first bullet point.

Oh yeah...and as an aside, while I don't normally have much sympathy for health insurance carriers, allowing this would also effectively screw over the carriers who pay substantial fees every year (3.5% of the premium revenue) just to participate on the federal ACA marketplace in the first place. In return, they're supposed to be participating in a marketplace where they won't be at risk of being undercut by noncompliant junk plans. HC.gov and the other ACA exchanges exist for two reasons: First, because tax credit calculations/mechanics require a website which interfaces with the IRS, INS and other federal department databases to determine eligibility; and second, so that there's a place to run an apples to apples comparison of ACA-compliant healthcare policies, where visitors know that every plan has been ACA-approved.

If junk plan carriers can start hawking their wares as being "ACA subsidy eligible!", it amounts to ACA-compliant carriers effectively being forced to pay to promote their competition.

  • Provides greater flexibility for states to consider improvements in comprehensiveness and affordability for state residents as a whole versus the prior focus on specific populations;

This strikes me as another way of saying "I don't care if 10,000 sick people have to pay more as long as it means that 90,000 healthy people pay less!"

  • Supports increased variation and flexibility for states that may want to leverage components of the Federal Exchange platform to implement new models; and

I think this has to do with the one possibly positive option described above: A state possibly raising the 400% FPL subsidy cap. Again, the problem with this is that since it wouldn't be allowed to cost one dime more in federal dollars than the current structure already does, the odds are high that shifting some subsidies to middle-class folks would be done at the expense of lower-income enrollees, which isn't really acceptable either.

Again, I would still be extremely cautious even on this one.

  • Provides flexibility for states to meet the state legislative authority requirement. The guidance clarifies that in certain circumstances, existing state legislation that provides statutory authority to enforce ACA provisions and the state plan, combined with a duly-enacted state regulation or executive order, may satisfy the requirement that the state enact a law.

This...well, to be honest, I'm not sure I understand this one. It sounds like it has to do with redefining who has the final word when it comes to making decisions in a given state--the Governor, the Legislature or the Insurance Department.

Verma herself gave four examples of what she has in mind:

The concept with perhaps the best potential to address various structural problems with the ACA would create a new account-based program to help subsidize health care expenses. The account-based approach would allow a state to provide a cash contribution to an account that people can use to pay both premiums and any out-of-pocket health expenses...

  • States can develop a new premium subsidy structure and decide how those premium subsidies should be targeted;
  • States can set the rules for what type of health plan is eligible for state premium subsidies to give people access to more health plan options; and
  • States can implement risk stabilization strategies to address the costs of high risk individuals to reduce premiums in the market for everyone.

As Dave Anderson summarized:

Snarky summaries:
1) Super HSA (great for healthy)
2) Iowa
3) Idaho
4) Reinsurance

— David Anderson (@bjdickmayhew) November 29, 2018

HSA refers to Health Savings Accounts:

A Health Savings Account (HSA) is a tax-advantaged account created for individuals who are covered under high-deductible health plans (HDHPs) to save for medical expenses that HDHPs do not cover. Contributions are made into the account by the individual or the individual's employer and are limited to a maximum amount each year. The contributions are invested over time and can be used to pay for qualified medical expenses, which include most medical care such as dental, vision and over-the-counter drugs.

I don't know much about HSAs, but I think the way it works is that you enroll in a high-deductible policy (say, $6,000), and then you put $6,000 into the HSA (there are limits on the amount...$3,500 for an individual, $7,000 for a family) which you then use to draw down your deductible throughout the year. If you're healthy and have the $6K to spare, this is great because the money comes from pre-tax income, which means you've just lowered your taxes (by, let's say, $1,500 if you're in the 25% income tax bracket). The catch is that the money can only be used to pay for medical expenses, which is fine since you'd have to pay that $6K to meet your deductible anyway. If you don't need to use some/all of the money, it can roll over the next year and gain interest, remaining tax-free.

Again, if you have that kind of money to spare, HSAs aren't a bad idea...but otherwise they're not terribly practical for most folks. Here's a full explainer from Louise Norris if you'd like to know more about them.

The "Iowa" bullet refers to this:

Does making health insurance premiums more affordable for healthier, wealthier people justify sharply increasing out-of-pocket costs for lower-income and sicker people?

That's one of the key questions critics are raising about Iowa's sweeping new proposal to revamp its individual insurance market and abolish its federal exchange. The state submitted the plan—called the Iowa Stopgap Measure—to HHS and the U.S. Treasury Department Tuesday under Section 1332 of the Affordable Care Act.

...Under Iowa's state innovation waiver request, residents would receive premium subsidies based on broad age and income categories, without using the Affordable Care Act's calculation to cap premium costs at a certain percentage of a person's income. The state revenue department would determine a person's eligibility and level of subsidy, rather than having that determination made by the federal exchange.

...Another change is that people earning more than 400% of the federal poverty level would be eligible for premium subsidies. Meanwhile, people with incomes from 138% to 250% of poverty would no longer receive cost-sharing subsidies to reduce their deductible and coinsurance payments.

This is PRECISELY what I was referring to above. YES, the 400% FPL cap should absolutely be raised/removed...but NOT at the expense of lower-income enrollees.

The "Idaho" bullet refers to this:

Last week, Idaho made a startling announcement: It will allow insurers to sell health insurance that does not comply with Obamacare regulations. This means that, in Idaho, health insurance plans could once again deny coverage to people with preexisting conditions — or charge them higher prices.

They could decide to not cover certain benefits that Obamacare mandates (maternity coverage, for example, was often left out before the health law) or put lifetime caps on their benefits. Idaho is the first state to roll out this type of regulation; it did so in a bulletin last week, first reported by the Wall Street Journal.

What we know: The Idaho rules clearly run afoul of federal law. The Affordable Care Act outlaws the exact type of plans that Idaho wants to allow onto its insurance market.

Finally, the "reinsurance" bullet refers to...well, presumably reinsurance programs, which are ALREADY allowed by the ACA today, are a GOOD thing, and work so well that even Verma herself has approved them in a half-dozen states, so I'm not sure I understand the point of including them in this list anyway.