Red State aspirational waivers on the ACA

I’m working on a new research project examining ACA Section 1332 waivers.  These waivers allow states to experiment and customize their local market rules to fit local objectives and circumstances.  These waivers have to meet four guardrails in order to be approved and maintain approval:

• Cover at least as many people
• At least as well
• At least as affordable coverage
• While spending no additional federal funds

Right now, the most typical waiver is a reinsurance waiver.  Red states have these waivers.  Blue states have these waivers.  Purple states have these waivers.  All of these waivers fundamentally function in the same manner.  A source of funds that is not from premiums is injected into the claims payment pool to pay some chunk of claims.  The outside funds means premiums don’t have to be as high to cover a given set of claims.  This means premiums drop relative to the no-waiver counterfactual and premium subsidies drop as well.  The premium subsidy drop is then recycled back into the premium reductions that mostly benefit individuals who don’t receive subsidies.

Those waivers are important and interesting.

However, I’m really curious about the waivers that aren’t just reinsurance.  These waivers are the hints of various futures.  And those futures vary dramatically depending on what you think the world should look like and should  work.

Today, I want to talk about two waiver applications that show plausible conversative twists on the ACA.  Iowa filed what they called the Stop Gap Measure in 2017. Georgia filed for the Georgia Access Model in 2019.  I’ll be looking at the original filings.

The original Iowa submission was in the summer of 2017.  There were three big and mostly unique components.

• A single plan design would be offered to everyone
  • Initially no CSR benefits for low income buyers
  • Multiple revisions later, there were CSR add-ins
• Single period open enrollment with guaranteed issue
  • After the open enrollment period, 12 months of continual coverage required to trigger most Special Enrollment Periods
• Age-Income based subsidies instead of income/premium level subsidies.

There is also a reinsurance component that structurally would have a really nice job of eating truly catastrophic claims ($3 million +).

The key components of this waiver would have been the continual coverage requirement for a SEP and the subsidy scheme adjustment. The continual coverage requirement replaces the individual mandate in its intended functionality to reduce adverse selection in the market. The continual coverage requirements likely reduces actual mid-year take-up by lower income buyers due to behavioral frictions.

The other big difference, and it is very similar to the AHCA/Repeal and Replace bills from 2017 was age based subsidies.

In the ACA, individuals with wildly variant ages but the same income living on the same block see the same net of subsidy premiums for the benchmark plan.  There is age variation with older subsidized people seeing cheaper net of subsidy prices for below benchmark plans relative to younger people of the same income.  Most of my policy/research agenda from when I started writing at Balloon-Juice to probably 2019/2020-ish was inspired by the weird stuff that happens with price linked subsidy systems.

Iowa gets rid of these oddities.  Instead, for a given level of income, younger people get cheaper premiums for the benchmark (and only) plan offered.  The motivating feature was the observation that the ACA markets were heavy on old people and light on young people.  The ACA markets are modestly to substantially risk selected.  So Iowa said old people likely value insurance more than young people, so they’ll still enroll at a higher premium but young people are very premium sensitive to enroll.  Getting more young people in the market will improve the risk pool and drive down premiums.

That sounds fine!  Programmatically,  it fails.  Lots of young people were likely exposed to zero premium plans due to price linked subsidies for either silver or bronze plans.  Zero is substantially different than $7 (paper to come soon-ish).

But this is one vision for the health insurance markets.  It breaks subsidies from local costs, increases relative costs for older people rather than younger people, reduces the choice space to a single plan variant offered by each insurer at a fairly low actuarial value, and it uses a continual coverage requirement to manage adverse selection incentives.

The Iowa waiver was filed and modified several times in 2017.  It was not approved as the state withdrew the waiver application.

Now let’s go to Georgia which submitted a huge waiver in 2019.  The first part of the waiver is a reinsurance waiver.  That is interesting in its details but not in its scope nor ambition.  The second part of the waiver is the Georgia Access Model. 

Georgia wanted to get off of Healthcare.gov.  That is not unusual.  Many states don’t use Healthcare.gov.  Those states run a state based marketplace like Covered California or Pennie.  Georgia does not want to go there either.  Instead, Georgia wants to entirely privatize the enrollment, outreach and information provision functions of the marketplaces.

The state also wanted to waive the requirement that only Qualified Health Plans could be subsidized as well as waiving CSR and Premium Tax Credits.  Subsidies would be structured to be similar to ACA in the first year, but total spend would be capped.  Individuals who enroll after the cap is reached would not receive subsidies.

The key thing about this waiver proposal is it allows for the subsidization of underwritten health insurance plans by funds that otherwise would have only been available for only community rated, guaranteed issue plans.  At the same time, Georgia wanted to shut down a central shopping plaza and outsource it to the private sector.  Some of my research addressed this question of what the private sector does when public information seeking supports disappear — and the answer was nothing obvious — as private sector insurers want to seek out profitable enrollees instead of all enrollees.

Georgia’s reinsurance waiver is in operation.  The Georgia Access Model was approved in November 2020, had been delayed until the Biden CMS shut it down as they found that the guardrails were likely to be violated.

These two states show plausible conservative healthcare finance and risk management systems within something that looks like the ACA context.  I’ll want to look at a couple of Blue State waivers that are likely coming soon to show what a liberal take on the status quo could look like.