Health Services
The 2017 State Innovation Waiver:
Alternatives for States to Consider
Contents
Supporting State Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . 1
What a Waiver Could Provide . . . . . . . . . . . . . . . . . . . . . . . . . 3
Policy and Operational Assumptions and Questions. . . . . . . 4
State Innovation Waiver Ideas. . . . . . . . . . . . . . . . . . . . . . . . . 5
Coverage for Individuals with Access to ESI. . . . . . . . . . . . . . 6
Coverage for Individuals without Access to ESI. . . . . . . . . . . 6
Option One: CHIP Family Coverage. . . . . . . . . . . . . . . . . . 6
Option Two: Medicaid Family Coverage . . . . . . . . . . . . . . 7
Enacted with the Affordable Care Act (ACA),
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. While
there are many options to consider, the path
toward achievement of such waivers is complex,
involving significant policy, operational and
political considerations. This paper can serve as
a starting point to generate creative thinking that
will provide state-designed solutions for health
insurance coverage of each state’s citizens.
Supporting State Innovation
Option Three: State Employee Health Plan . . . . . . . . . . . . 8
For many years, governors across the country have
proposed unique, innovative and cost-effective
Option Four: Comprehensive Coverage
ways to provide public health insurance coverage
in Lieu of Medicaid, CHIP and the Exchange. . . . . . . . . . . 9
to their citizens, especially within their Medicaid
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
programs. These initiatives, implemented under
1115 waivers from the Centers for Medicare &
Medicaid Services (CMS), 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 a new approach
for how its own 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.
Helping Government Serve the People
®
Copyright 2014
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MAXIMUS | Health Services
The ACA includes a provision that gives states a major incentive to design new approaches to their
Medicaid (Title XXI of the Social Security Act) program and to rethink how the federal funding that
supports Medicaid, the Children’s Health Insurance Program (CHIP, Title XXI of the Social Security
Act) and exchange subsidies (Insurance Affordability Programs) might be more effectively spent
on a state-designed program.
The Waiver for State Innovation provision, known as the 2017 State Innovation Waiver and codified
in ACA Section 1332, provides states with the option to cover their citizens using methods that
diverge from the ACA’s overall design. Under this provision, any or all of the following ACA
requirements may be waived:
• Establishment of Qualified Health Plans (QHPs), with the exception of the Essential Health
Benefits (EHB)
• Delivery of QHP benefits through a health insurance exchange
• Advanced Premium Tax Credits (APTC) to subsidize coverage in the exchange for qualified
individuals between 100 and 400 percent of the Federal Poverty Level (FPL)
• Cost-sharing reductions (CSR) in the exchange for qualified individuals at or below 250
percent of the FPL
• Individual requirement to maintain minimum essential coverage
• Small business tax credits
• Employer mandate
In developing new designs for these programs on a more ambitious scale, some governors have
considered the concept of global payments, in lieu of tightly limited funding, while others have
sought ways to blend different funding streams. For example, if a waiver proposes to eliminate
APTC, cost-sharing reductions and/or small business tax credits, then federal revenue that would
have been used for them is paid to the state in a periodic lump sum.
In addition to waiving elements of the exchange design, the 2017 State Innovation Waiver may also
allow states to submit a single application to waive requirements under Medicaid, CHIP, and “any
other federal law relating to the provision of health care items or services.” In doing so, states can
pool federal and state funds to be spent on a comprehensive continuum of coverage program.
While there are limits to what can be approved by CMS, opportunities for innovation are
welcomed and encouraged. For a waiver to be approved, a state’s proposed health insurance
affordability environment must meet four conditions:
• The proposed coverage is at least as comprehensive as the EHB, as defined in Section
1302(b), and offered through the exchanges
• Qualified individuals will not pay more for their coverage than they would have through the
exchange
• The coverage is available to at least as many people as there are under the exchange design
• The proposed plan will not increase the federal deficit
As with many aspects of the ACA, there are certain operational and financial details to coordinate
with the two agencies that share responsibility for the primary ACA provisions: the U.S. Department
of Health and Human Services (HHS) and Department of Treasury (IRS). These details start with
answering the following questions:
• Will a state’s federal allotment be adjusted each year, based on actual enrollment? Will afterthe-fact reconciliation also occur?
2017 State Innovation Waiver
3
• What does it mean that at least as many people must be covered as under the exchange
design? Among the possible enrollment baselines are:
»» All subsidy-eligible individuals
»» All individuals eligible for coverage by a QHP, regardless of subsidy status
»» All QHP-eligible individuals, as well as employees of Small Business Health Options
Program (SHOP) enrolled companies
• Do all 10 EHBs have to be included if the proposed benefits package is actuarially equivalent
or superior to the ACA-defined list?
• May existing and new Medicaid waivers be incorporated into the 2017 State Innovation Waiver
as a consolidated approach?
• If the funding for exchange subsidies (APTC and CSR) is combined with Medicaid funding, to
what extent must those funding streams be tracked and accounted for separately?
It is critical that states answer these questions and begin working with HHS and IRS in 2015 to
develop their best program strategies.
2017 Waiver Basics
Waivable ACA Requirements
Qualified Health Plans
Establishment of Qualified Health Plans (QHPs)
Health Insurance Exchanges
Delivery of QHP benefits through a health
insurance exchange
Premium Tax Credits
Premium tax credits (APTC) to subsidize coverage
in the Exchange for qualified individuals between
100 – 400% of the federal poverty level (FPL)
Innovation Waiver Conditions
Minimum Essential Coverage
Individual requirement to maintain minimum
essential coverage
Business Tax Credits
Small business tax credits
Employer Mandate
Employer mandate
At least as much coverage...
The proposed coverage is at least as comprehensive as the Essential Health Benefits (EHB)
defined in section 1302(b)
At least as affordable...
Qualified individuals won’t pay more for the
coverage than they would have in the Exchange
At least as many people...
The coverage is available to at least as
many people as the ACA covers
At least as cost effective...
Reduced Cost-Sharing
Reduced cost-sharing (CSR) in the Exchange for
qualified individuals at or below 250 percent FPL
Any or all of these may be waived.
The proposed plan won’t increase the
federal deficit
2017 Waiver Basics
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. Much of this interest focuses on how waivers might address some
of the ACA’s greatest challenges:
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• “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, 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
Policy and Operational Assumptions and Questions
We have made some high-level policy assumptions in regards to the 2017 State Innovation Waiver.
These assumptions and some additional questions still need to be clarified by HHS and/or IRS in
consultation with state policymakers.
High-Level Policy Assumptions and Open Questions
• The 2017 State Innovation Waiver funding mechanism is linked to the federal subsidies within
an ACA-compliant exchange (APTC, CSR and small employee tax credits). For operational
and potentially legal reasons, a state that has deferred to the federally facilitated marketplace
(FFM) and proposes to capture some or all of this revenue will likely need to envision a health
insurance affordability design in lieu of the FFM. In states with a state-based exchange, the
waiver could propose changes to the exchange design and/or a strategic design in lieu of
the exchange.
• A 2017 State Innovation Waiver could propose an alternate range of income-based subsidies
compared to the current exchange construct. If the upper income limit were lower than
current 400 percent FPL, another coverage group would need to be added to the overall
pool to meet the requirement that at least a comparable number of people would be
offered coverage. One of the most likely choices to meet this is individuals with access
to employer-sponsored insurance. This group is currently locked out of subsidies, even
though their citizenship/immigration and income status would otherwise qualify them. To
avoid disruptive effects on private health insurance, the subsidy approach for this coverage
group would have to be carefully defined, with a minimum employer contribution level that
creates a “three-share” approach in which the government, the employer and the employee
share the cost in a pre-defined way.
• If multiple new insurance affordability platforms were implemented — creating a significantly
larger pool of eligible individuals than can be financed with the federal allotment and
employer contributions — could overall enrollment be capped at a specific level to create
budget certainty, so long as this number was at least as large as the coverage baseline? This
would be a major change from the de facto subsidy entitlement (subject to the enrollment
period) of the current exchange design.
2017 State Innovation Waiver
High-Level Operational Assumptions
The 2017 State Innovation Waiver concepts all share a set of operational assumptions:
• There could be a single intake point for all subsidized coverage: Medicaid, CHIP and the
new waiver coverage infrastructure. Application, eligibility determination, appeals and
renewals would occur through a single, streamlined application via a portal, similar to the
current model. Qualification for a continuum of subsidies on the basis of the MAGI (Modified
Adjusted Gross Income) standard would be a key operational function that carries over to the
new model with little or no change from the current environment. Any waiver of eligibilityrelated rules would be subject to federal discretion.
• Initial application intake would also screen for a person’s access to ESI. Those individuals who
do have access to ESI and are applying for subsidized coverage would receive their subsidized
coverage (including Medicaid or CHIP, if qualified) through their ESI.
• While the overall amount of federal contribution would be based on the current ACA-subsidy
design, the per-person subsidies with a waiver-based approach would not necessarily have
to follow the current income-based continuum across Medicaid, CHIP and the exchange. At
the same time, it would be problematic to propose a design that imposed significantly higher
financial burdens on particular income groups, particularly those at the lower levels. This is a
policy area that will require collaboration with CMS officials.
• While exchange coverage is delivered through managed care health plans that pay
commercial provider reimbursement rates, it is possible that the provider rates in a waiverbased infrastructure could be lower. With lower managed care capitation rates (based on
a procurement that involves state rate setting), a state’s federal allotment (which is based
on commercial rates) could be stretched further. While this will create additional financial
flexibility, it may also create resistance in the provider community and be viewed unfavorably
by policymakers who prefer a purely market-based approach rather than one in which the
state is an active participant.
• An innovative state could propose a comprehensive waiver that sets aside existing Medicaid,
CHIP and exchange statutory and rules-based policy in favor of something entirely different,
so long as it achieves the four previously cited goals of sufficient benefits, equivalent numbers
of covered individuals, no higher out-of-pocket costs and no increase from existing federal
spending. In this policy construct, all family members could be kept together within the same
program across the entire range of income-based subsidies. Churning between programs
would be eliminated and all family members would benefit from a single program identity,
provider network and enrollment process.
2017 State Innovation Waiver Ideas
There are several concepts for future consideration under the 2017 State Innovation Waiver.
They fall into two general categories: providing coverage through the ESI market (also known as
“premium assistance”) and new approaches to government-sponsored coverage for individuals
and families without access to ESI. These two categories are parallel ideas, one or both of which
could be articulated in a waiver. While each of the waiver concepts is a significant departure from
current policy, they do appear to fall within the law’s parameters.
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Coverage for Individuals with Access to ESI
Some states have previously sought to keep low-income individuals in their private ESI plans
through premium assistance programs. For policymakers concerned that the ACA disrupts the
ESI market, combining public dollars with private dollars could be an attractive alternative. Using
the 2017 State Innovation Waiver, a state could request a waiver from the provisions of the current
Medicaid premium assistance rules to cover these individuals and their families. This approach
could be appended to a Medicaid and/or CHIP waiver, or it could stand alone.
From a continuity-of-coverage perspective, a seamlessly connected “three-share” (employer, state
and employee) program would enable low- and moderate-income individuals with access to ESI to
receive their health insurance through their employers with the cost to them gradually increasing
as their incomes rise. The funding streams for the government subsidies would change from
Medicaid to CHIP to the exchange as incomes rise.
This approach could stabilize and strengthen the ESI market. It also makes it more difficult for
employers to consider dropping existing ESI because doing so could negatively impact all of their
employees.
In this model, some of the traditional Medicaid Health Insurance Premium Payment (HIPP)
challenges would be avoided:
• The benefits would be the actuarial equivalent of the 10 Essential Health Benefits rather than
the full Medicaid package, so wrap-around benefits would not be an issue
• There would not be a cost-effectiveness test, so long as an equivalent number of individuals
are offered coverage and federal spending does not go up
• All members of the family could be required to participate
However, there would continue to be operational challenges associated with:
• Payment of the premium subsidy
• Reimbursement of cost sharing expenditures
• Employer education and buy-in
Coverage for Individuals without Access to ESI
Option One: CHIP Family Coverage
Definition: This option would cover adults whose incomes fall within the designated eligibility
range, including those without children. The idea also assumes CHIP’s continued funding and
authorization, which may happen, but is not assured.
CHIP Family Coverage envisions a single health plan for each member of the family within the
income range chosen by the state. The CHIP administrative entity would operate this program,
including the collection of a single premium on behalf of all enrollees within a family.
For children, CHIP or exchange subsidy revenue would be the funding mechanism, depending
on whether a family’s income fell within existing CHIP eligibility guidelines. Exchange revenue
would pay for the adult coverage.
In non-expansion states, the lower income limit would be 100 percent FPL, which corresponds to the
lower-limit for the exchange. While children in the 100 to 133 percent range are currently eligible for
Medicaid, the waiver could propose CHIP Family Coverage for that group to keep families together
across the entire income continuum. In expansion states, the lower-limit would be 133 percent (138
2017 State Innovation Waiver
7
percent before the disregard). The upper income limit would be subject to the waiver’s overall
coverage design, but 250 percent may be a plausible target with exchange-based coverage for
families above 250 percent. Alternatively, CHIP Family Coverage could go up to 400 percent.
Benefits: CHIP Family Coverage has several advantages:
• The applicable income range could start where Medicaid ends and go up to 400 percent FPL
• The federal funding would be maximized
• Spending of federal funds on administrative costs would not be precluded
This option is designed to significantly reduce the churn and family stratification associated with the
exchange model, and is suitable for non-expansion states or states with stand-alone CHIP programs.
100%
FPL
Non-expansion States
Expansion States
133%
FPL
250%
FPL
CHIP-Family Coverage
400%
FPL
Exchange
Coverage
CHIP-Family Coverage
CHIP-Family Coverage
Exchange
Coverage
CHIP-Family Coverage
Option 1: CHIP Family coverage
Option Two: Medicaid Family Coverage
This idea is suitable for Medicaid expansion states. Its primary advantage would be a seamless
coverage continuum between Medicaid and the coverage program available to low- and mediumincome families who transition out of Medicaid because their incomes increase or family size
decreases.
Definition: Individuals in a specified income range, for example 138 to 250 percent FPL, would
become eligible for a program that looks like Medicaid, but is not because it is funded and
regulated differently. While enrollees would have access to the same health plans and benefits,
the method of financing would change. Enrollees would be subject to sliding scale premiums and
cost sharing.
Benefits: Because it is a look-alike program, the state would not be subject to Medicaid
regulations for this coverage group, creating a more flexible environment for premiums, co-pays
and any other policies that a state might envision to ease the transition from Medicaid to the
exchange.
While the benefits package could mirror Medicaid, it would not have to, so long as it is actuarially
equivalent to the 10 Essential Health Benefits. This would create additional flexibility for states
wishing to move away from a highly regulated Medicaid program model.
Over time, the combined Medicaid risk pool would be significantly enlarged, creating a more
advantageous actuarial situation that could logically drive down rates. Medicaid rates are typically
lower than commercial rates, so the federal allotment could be stretched further, enabling a larger
number of people to be covered and/or receive more generous subsidies.
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100%
FPL
133%
FPL
250%
FPL
Medicaid Family Coverage
Expansion States
400%
FPL
Exchange
Coverage
Medicaid Family Coverage
Option 2: Medicaid Family Coverage
Option Three: State Employee Health Plan
Definition: Every state has a health insurance infrastructure for its current and retired employees.
This is a natural platform for a waiver-based alternative to the exchange. It could be limited only to
individuals not eligible for Medicaid or CHIP; or it could be expanded to include them as well, with
Medicaid and CHIP coverage delivered through a premium assistance model similar to the one
pioneered by Arkansas.
While premiums would be the same, the amount that a qualified individual pays (compared to a
state employee or retiree) would be based on his or her income, with subsidies making up the
difference, just as in the exchange.
Benefits: Qualified individuals based on the criteria enumerated in the waiver would have access to
the same health plans as state employees. This means insurance affordability consumers would
be able to enroll in the same plans, at the same prices, as their political leaders and the agency
staffers in charge of the program.
The combined risk pool would be significantly greater than the existing one, with a disproportionate
number of new enrollees being on the younger side compared to the current enrollment that
includes retirees. Over time, this would create a more advantageous actuarial situation that would
logically drive down rates. The amount the state saves could be added to the federal revenue to
increase the subsidy pool and/or it could be a collateral budgetary benefit of the waiver.
If a state expands Medicaid and keeps it as a stand-alone program, its Alternate Benefit Plan
(ABP) could be modeled on the state employee plan, creating an obvious pathway to continuity of
coverage and reduced churn. Alternatively, expansion coverage could be integrated directly into
the new coverage infrastructure through a premium assistance model.
100%
FPL
Non-expansion States
Expansion States
Option 3: State Employee Health Plan
133%
FPL
250%
FPL
400%
FPL
Subsidized Individuals
Individuals with Affordable ESI
Subsidized Individuals
Individuals with Affordable ESI
2017 State Innovation Waiver
9
Option Four: Comprehensive Coverage in Lieu of Medicaid, CHIP and the Exchange
Definition: This idea is likely to be most intriguing to the states that have previously sought to
redesign their Medicaid programs on a grand scale. While it would go significantly further than
Medicaid waivers have gone before, its basic assumptions are not precluded under the broad
authority of a State Innovation Waiver.
Theoretically, this option could encompass all currently eligible coverage groups — including
the aged, blind and disabled (ABD) — but it would be most workable if targeted to all except
the Medicaid ABD population. Under this concept, all existing insurance affordability funding
streams, except for the ABD populations, would be consolidated into a single program with
income-related subsidies that track current policy. This could be handled as a single-payer option
if ESI was eliminated, or as a two-pronged approach that maintains ESI and potential premium
assistance for those who qualify, and non-ESI subsidized coverage.
Benefits: The operational details of the program — how health plans are obtained and certified, the
benefits package, enrollment processes, incentives for healthy behavior, and the possible integration
with ESI coverage — would reflect a state’s distinctive health care infrastructure and political culture.
This would not be a block grant because the funding would still be tied to a waiver that must meet
ongoing federal approval, but it would be much more flexible than current insurance affordability
policy and provide the state with the ability to combine funding streams into a single program.
Funding
Health Insurance
Exhange
Medicaid
2017 Waiver
Requirements
CHIP
Option 4: Comprehensive Coverage in Lieu of Medicaid, CHIP and the Exchange
Comprehensive
Coverage
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Of the ACA-related challenges previously mentioned, the following table shows the options the
problems address:
ESI*
Option
1
Option
2
Option
3
Option
4
X
X
X
X
X
X
X
X
X
Problematic technology, operations, and
communication linkages and hand-offs
X
X
X
X
A top-down operational design, codified in
complex and sometimes inconsistent rules
and guidance
X
X
X
X
ACA Challenge
Churning between the primary programs
as incomes, family size and employment
situation change
Stratification of families for health insurance
purposes, with some mixed family members
The inequity of the employee-only ESI
affordability test
X
The incentive for employers with
disproportionate numbers of low-income
employees to drop coverage
X
* ESI Premium Assistance.
Option 1: CHIP Family Coverage; Option 2: Medicaid Family Coverage; Option 3: State Employee Health Plan; Option 4:
Consolidated Subsidized Health Insurance.
Conclusion
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, innovative waivers may be the answer for both.
Beginning in 2017, states can create a new design for their programs that are individualized for their
unique demographic, economic, cultural and political factors and values.
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