Health Update - December 2015

In This Issue:

• Lessons from Hawaii's Trailblazing ACA 1332 Waiver Proposal
• Administration Guidance on State Innovation Waivers Restricts Flexibility
• PPart BPayments for 340B-Purchased Drugs
• Recent Changes to Stark Regulations Ease Compliance Burden for Providers
• Antitrust Update: Solomon Center Inaugural Conference Explores Implications of Healthcare Consolidation Under the Affordable Care Act
• Long-Term Services and Supports: Opportunities for MassHealth
• U.S. Supreme Court to Hear Religious Nonprofit Organizations' Challenge to the AAffordable Care Acts Contraception Mandate

Authors: Joel Ario, Managing Director | Spencer Manasse, Senior Analyst

Editor's Note: On September 9, Hawaii became the first state to post a draft 1332 waiver proposal for public comment. While Hawaii's proposal focuses on the state's unique 40-year-old employer mandate, the proposal illuminates the procedural and substantive issues that other states will have to address in advancing their own 1332 waiver proposals. In a recent article in Law360, summarized below, Manatt Health defines 1332 waivers, examines the provisions of the Affordable Care Act (ACA) that Hawaii is proposing to waive, and highlights what other states can learn from Hawaii's proposed waiver. Click here to read the full article.

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What Are 1332 Waivers?

Section 1332 of the ACA authorizes states to request waivers from the U.S. Department of Health and Human Services (HHS) and U.S. Department of the Treasury of key components of the ACA's coverage provisions, including those related to:

• Benefits and subsidies,
• Marketplaces and Qualified Health Plans,
• The individual mandate, and
• The employer mandate.

In addition, 1332 waivers must meet four guardrails, ensuring that coverage remains as affordable, comprehensive and accessible as pre-waiver coverage, as well as that the waiver does not contribute to the federal deficit. Waivers can take effect as early as 2017 subject to an approval process with specific statutory and administrative requirements,¹ including legislative authorization, public hearings at the state level and public comment periods at the federal level.

What Provisions of the ACA Does Hawaii Propose to Waive?

Hawaii proposes "to maintain all aspects on the innovative Hawaii Prepaid Healthcare Act" and to waive provisions of the ACA "that diminish [the Prepaid Act]." "The Prepaid Act," enacted in 1974 and exempted from the Employee Retirement Income Security Act (ERISA), requires "virtually every employer with at least one permanent, full-time worker to purchase employee health insurance coverage."²

Several features of the Prepaid Act are stricter and more employee friendly than their ACA counterparts. For example, full time is defined as working 20 or more hours a week (compared to 30 hours in the ACA) and employees cannot be charged more than 1.5% of their wages for premiums (compared to a sliding scale of 2 percent to 9.5 percent under the ACA).

After three years of attempting to reconcile the Prepaid Act with the Small Business Health Option Program, Hawaii proposes to waive SHOP and related provisions of the ACA. Hawaii does not propose any waivers in its 1332 proposal that affect individual market purchasers.

What Can Other States Learn from Hawaii's Proposed Waiver?

Because Hawaii's Prepaid Act is the only state-based employer mandate that is exempt from ERISA's restrictions on state regulation of employer-sponsored health benefits, other states cannot pursue the same 1332 waiver. Some, however, may want to pursue their own SHOP waivers and can learn from Hawaii's experience as it negotiates with HHS and Treasury. Further, all states can learn from Hawaii's approach to the standard requirements for 1332 waivers.

Hawaii asserts that its draft waiver proposal complies with the four statutory guardrails as follows:

• Scope of coverage. Hawaii claims that the Prepaid Act is a more effective coverage plan than SHOP, citing near universal compliance with the Prepaid Act and noting only 1 percent of small employers have enrolled through SHOP.
• Comprehensiveness of coverage. Hawaii is not proposing any waivers with respect to the ten Essential Health Benefits.
• Affordability of coverage. The Prepaid Act limits employee contributions to premiums and employee cost sharing more strictly than the ACA. It also caps annual out-of-pocket maximums at lower levels than the ACA.
• Federal deficit. Hawaii projects that the federal government will save money by not having to administer SHOP. In place of the tax credits that small businesses would have received through SHOP, it proposes federal funds to support financial assistance to employers with fewer than eight employees in the form of prepaid premium supplementation.

Other technical and policy issues for states to watch include:

• Replacing SHOP with direct enrollment. Like many states, Hawaii has had limited success in attracting insurers to offer products or employers to purchase products through SHOP. Though Hawaii is the only state with an employer mandate, other states may be able to demonstrate that they could do as well or better on scope and affordability of coverage by relying on direct enrollment or another alternative to SHOP.
• Employer and employee choice. Hawaii's application points out that employers have five insurer choices off exchange and only one choice in SHOP. The facts will be different in each state, and it's unclear whether loss of choice will be an issue with 1332 waivers of SHOP.
• Reallocating the small business tax credit. Hawaii proposes that $46 million in federal funds be allocated to Hawaii's premium supplementation fund, which assists employers with less than eight employees in covering their obligations under the Prepaid Act. The $46 million assumes that 10% of qualified employers would have received tax credits for SHOP. The proposal raises the question of how to handle the impacts that waivers may have on ACA provisions that are outside the waivable sections of the law.
• January 2017 implementation. Hawaii proposes implementation of its waiver on January 1, 2017. Other waivers may not be ready for implementation as quickly, particularly in states where the required legislative authorization may not occur till mid 2016 or later.

Looking Ahead

The substantive issues related to Hawaii's proposed SHOP waivers will be of broad interest to states. Hawaii's negotiations with HHS and Treasury will provide insight into the federal government's approach to evaluating state innovation proposals against the statutory guardrails. The state's application also will merit a close watch for how the state and federal governments manage the waiver approval and implementation timeline.

_{¹HHS and Treasury promulgated procedural recommendations but have not addressed the guardrails.}

_{²Hawaii State Legislature. "Chapter 393: Prepaid Health Care Act." 2010 Hawaii Revised Statutes.}

Authors: Patricia Boozang, Senior Managing Director | Michael Kolber, Associate, Healthcare Industry

The Department of Health and Human Services (HHS) and the Treasury Department released long-awaited guidance this month, on how they intend to review applications for state innovation waivers under section 1332 of the Affordable Care Act (ACA).¹ While some states have considered applying for such waivers, which can first be effective on January 1, 2017, to transform their health coverage or delivery systems, the new guidance suggests HHS and Treasury, at least in this Administration, are unlikely to approve waivers that involve significant reorderings of the coverage and subsidies available to low- and middle-income people. States likely will continue to discuss these issues with the Administration and may eventually obtain waivers, but this guidance provides important insight into the Administration's starting position. The Administration appears to be taking precautions to ensure these waivers do not weaken the coverage available under the ACA today, particularly to vulnerable populations.

Under section 1332, states may seek waivers of ACA provisions related to health insurance exchanges, federal subsidies, qualified health plans, and the individual and employer mandates. To be approved, so-called 1332 waivers must provide coverage that covers a comparable number of people at least as affordably and as comprehensively, and at no greater cost to the federal government, than would be the case without the waiver. While those statutory guardrails provide some flexibility in what types of waivers may be approved, the new guidance imposes interpretations on those guardrails that limit the types of waivers that can be approved. It appears the guidance will not impede some waivers, especially operational or technical waivers with minimal impact on the guardrails. However, HHS and Treasury say they lack the operational capacity to customize federally-facilitated marketplace (FFM) or Internal Revenue Service (IRS) procedures for particular state waivers, further restricting the feasibility of some waivers.

A state can propose a section 1332 waiver in connection with waiver of Medicaid requirements, but section 1332 does not expand existing statutory Medicaid waiver authority. Waivers can be approved for five years and can be renewed.

Before the most recent guidance, HHS and the Treasury provided limited guidance on the substantive standards they intend to use in reviewing waivers, promulgating regulations that set only the procedural requirements for applying for a waiver. In the absence of federal guidance, states have considered a wide range of waiver concepts, from comprehensive rearranging of state coverage and subsidy programs (often...