This report focuses on several state purchasing strategies designed to achieve concessions in negotiations with drug manufacturers and in other parts of the prescription drug supply chain. The highlighted strategies include intrastate actions, which combine state agencies’ purchases of drugs to improve their negotiating clout, and interstate activities, such as multi-state organizations that unite to purchase drugs for their Medicaid programs.
Read or download: State Initiatives Using Purchasing Power to Achieve Drug Cost Containment
Read or download a related report: Cross-Agency Strategies to Curb Health Care Costs: Leveraging State Purchasing Power This report highlights the unique approaches states across the country have taken to limit health care cost increases, ranging from limiting hospital rates increases to cross-agency collaboration to lower drug and health care costs.
Rising health care costs are an intractable problem in the United States, but states, faced with balanced budget requirements and growing voter concern, aren’t waiting for a federal solution.
States are increasingly looking beyond individual agencies and programs to harness the significant potential of their collective buying power.
State dollars fund Medicaid, state employee health plans, health services in mental health and correctional facilities, and public hospitals, and coverage for university, municipal, and school employees. When acting together, state agencies exert considerable buying power in an increasingly consolidated health care system. This report highlights the new wave of state initiatives that leverage collective purchasing clout to lower the cost trajectory.
Read or download: Cross-Agency Strategies to Curb Health Care Costs: Leveraging State Purchasing Power
On Oct. 22, 2018, the U.S. Departments of Health and Human Services and Treasury issued new guidance governing Section 1332 State Innovation Waivers, now called State Relief and Empowerment Waivers. Through increased state flexibility, the guidance supports the diffusion of association health plans and short-term, limited-duration plans, continue to stymie state efforts to use a 1332 waiver to support Medicaid buy-ins or public coverage options, provide a pathway for states that have not adopted Medicaid expansion to instead provide private coverage for those earning less than 100 percent of the federal poverty level (FPL), and loosen requirements so that states can apply for waivers without new legislative authority.
These changes are accomplished by loosening the standards by which states can meet the legal parameters established for waivers, otherwise known as the statutory guardrails (see below). The changes are intended to allow states to offer more “flexible and affordable coverage” while also reducing some of the administrative burdens of applying for waivers. Comments on the guidance are due Dec. 24, 2018.
Background on 1332 Waivers
Initially enacted under the Affordable Care Act (ACA), 1332 waivers allow any state to waive any or all requirements related to the ACA’s regulation of health insurance plans, establishment of health insurance exchanges, tax credit and cost-sharing programs, and individual and employer requirements to purchase health insurance. The ACA also defines specific “guardrails” that all waiver proposals must meet to be approved. Any state proposal must:
1. Provide coverage that is at least as comprehensive as that offered through the health insurance exchanges under the ACA, defined as coverage that meets all essential health benefit (EHB) requirements under the ACA;
2. Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable as coverage that would have been offered under the ACA;
3. Provide coverage to a comparable number of the state’s residents as would have been covered under the ACA; and
4. Not increase the federal deficit.
Prior federal regulation applied a strict standard to enforce these guardrails — requiring that any changes proposed under a state’s 1332 waiver ensured that all coverage would meet the comprehensive and affordability standards set by the ACA. While guaranteeing that consumers would have access to minimum benefit and cost-sharing protections established by the ACA, this standard limited the ability of states to significantly alter any regulation of their health insurance programs. To date, states have primarily used 1332 waivers to institute reinsurance programs rather than alter the design of products sold in their markets.
New Guardrail Definitions Reduce Minimum Requirements for Markets
The guidance applies a new standard in interpreting the ACA’s guardrails — requiring that states make available coverage that meets the affordability and comprehensiveness standards of the guardrails, while not requiring that all coverage under a state’s 1332 waiver meet these requirements. The guidance also significantly loosens how the federal government will define comprehensiveness and affordability, and how it will evaluate the number of covered lives under a waiver, opening states to a much broader interpretation of what will be required for coverage to meet these standards. Specifically, the changes:
- Apply less rigid definitions of how strictly coverage must meet EHB requirements and cost-sharing requirements;
- Broaden definitions of coverage to include coverage that meets minimum essential coverage requirements, as well as less comprehensive alternatives, such as short-term plans and (potentially) health sharing ministries;
- Revamp the method by which waivers must balance trade-offs between increases in coverage against reductions in affordability, especially for vulnerable populations (allowing for cost increases to the latter, in favor of the former); and
- Allow for evaluation of waivers for their aggregate effects over time, versus requiring that each guardrail, including deficit neutrality, is met in each year that the waiver is implemented. (See the table for a detailed comparison of changes.)
As described under the guidance, these changes should ensure that consumers can purchase coverage that is as comprehensive AND affordable as the coverage they were able to purchase under the ACA, while also allowing states to use waivers to provide access to other options “better suited to consumer needs.” For example, a state could use the waivers to finance tax credits to purchase short-term plans that do not meet EHB requirements so long as a product is still available on the market that does cover EHBs.
Notably, while the guidance maintains that states may factor changes in Medicaid enrollment as part of their waivers, it reinforces restrictions that limit the ability of states to leverage predicted savings in Medicaid (such as those proposed under an 1115 waiver) to finance the state’s proposed 1332 reforms. The inability of states to balance savings across programs and waivers has been a challenge for states wishing to pursue joint waivers (otherwise known as mega-waivers) that cut across their coverage programs, such as a Medicaid buy-in program.
The guidance also specifies limits to how states may pursue any desired changes to the administration of tax credits under a proposed waiver. While the federal government has some capacity to use its current infrastructure to enable states to revise how tax credits can flow to individuals under 100 percent of FPL, the Internal Revenue Service is not currently able to change how tax credits are administered to individuals above 100 percent FPL. The guidance suggests that states wishing to change the tax credit structure could eliminate the federal tax credit and instead implement a fully state-administered tax credit program with the funds that would have otherwise been paid through the federal government. While this opens up some opportunity for states to reconsider how tax credits are structured, such changes could incur significant administrative expenses for states wishing to operate and maintain such a program.
Increased Flexibility in Federal Infrastructure Could Support New State Programs
To support states’ abilities to implement new policies and programs under a 1332 waiver, the administration’s guidance indicates that states will have access to significant new functionality and flexibility within the federal health insurance exchange that will allow for customized state approaches and more robust sharing of federal data on enrollees. Specifically, the guidance suggests that states could use enhanced direct enrollment to build custom displays of plan data or could request that the Department of Health and Human Services build in new eligibility requirements consistent with any revamped coverage strategy proposed under the 1332. The guidance also suggests that states may explore eliminating use of the exchange altogether in an effort to implement a completely new coverage program designed under a 1332 waiver. The guidance makes clear that states will be responsible for financing all customizations requested of the federal exchange.
Flexibility over Enabling Legislation
Federal law requires that states enact enabling legislation to pursue a 1332 waiver, however timing of state legislative sessions and prioritization of policy issues have led to some delays or challenges in states’ ability to pass timely legislation. Recognizing that “administrative regulations and executive orders generally carry the force of the law,” states will be able to submit executive orders or regulation directing the state to pursue a 1332 in combination with any enacted general statutory authority for the state to implement or enforce the ACA. If an executive order is submitted, a governor must also submit a letter outlining the state’s authority to implement the proposed 1332 waiver.
The proposal raises some significant questions, notably about the impact of these changes on the individual market. The guidance also includes several clauses that raise questions about the long-term stability of any waiver programs. For example, the guidance asserts that the federal government may update its calculations of funding that states will receive under the waiver pending any future changes in federal or state law, including new regulations or sub-regulatory guidance. The guidance also mandates that states with approved waivers will have to ensure that waivers come into compliance with any new federal laws or regulations passed while the waiver is being implemented. These requirements could put states’ waiver programs at risk of significant alterations in the future, a potential vulnerability for states looking to pursue multi-year waivers.
States will need to examine the opportunities and challenges provided in this new proposal and provide comments to the federal government by Dec. 24, 2018. NASHP will continue to closely monitor as states evaluate the potential effect of the guidance on what they hope to achieve for their markets.
|Changes to Guardrail Regulation|
|Guardrail||Existing Regulations||Proposed Regulations|
|Comprehensiveness standard||The waiver must not decrease:
||Comprehensiveness will be evaluated by comparing access to coverage under the waiver to the state’s EHB benchmark. The state may select the EHB benchmark plan of another state|
|Affordability standard||Affordability is measured by net out-of-pocket (OOP) spending for health coverage and services relative to income. OOP spending includes premiums, and cost-sharing (e.g., deductibles, copays, co-insurance), and could include services not covered by a plan.||Changes definition from net to expected OOP spending. Adds direct payments as a form of out-of-pocket spending.|
|Disallows any increase in the number of state residents with large health care spending burden (especially vulnerable populations), even if the waiver maintained affordability in aggregate.||Will consider the total effect of changes in coverage and affordability. For example, a waiver that makes coverage only slightly more affordable for some, while incurring significant costs on others, is less likely to be approved than a waiver that makes coverage significantly more affordable for many, even if others will incur higher costs.
State applications should address how the waiver would address the priority of supporting and empowering consumers, including those with high expected health care costs and those with low incomes.
|Waivers must not reduce the number of individuals with coverage that meets a 60% or better actuarial value standard and other minimum cost-sharing limits specified in the Affordable Care Act (ACA).||Eliminated.|
|Coverage standard||Definition of coverage|
|Coverage is defined as minimum essential coverage, which includes employer-sponsored coverage and qualified health plans, but does not include limited benefit plans such as short-term insurance.||Coverage defined as benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise), including group health insurance coverage, individual health insurance coverage, and short-term limited-duration insurance.|
|Number of covered lives|
|Number of covered lives must be no less than forecasted number of covered lives absent the waiver.||States must demonstrate that a comparable number of state residents will have coverage as would have had coverage absent the waiver.|
|Changes in Medicaid enrollment caused by the waiver will count toward number of covered lives.||Unchanged.|
|Consideration of magnitude of coverage changes|
|The waiver may not cause a reduction in coverage across any group of individuals, including vulnerable populations, such as low-income individuals, the elderly, and those with serious health issues.||Departments will consider the total effect of coverage patterns in assessing states’ waivers, balancing the growth of coverage for some populations against any potential reductions of coverage for others.|
|Consideration of changes over time|
|The waiver cannot cause a reduction in covered lives in any year in which the waiver is implemented.||Departments will consider long-term impacts of the waiver, and will accept reduction in coverage in early years if balanced out by eventual gains in coverage.|
|Federal deficit standard||Waivers must not increase the federal deficit over the period of the waiver, or in total over the 10-year budget plan submitted by the state. Waivers will not be approved if they increase the deficit in any given year that the waiver is implemented.||It eliminates prior language that limits approval for state waivers that would increase the federal deficit in any given year, focusing primarily on the impact on the federal deficit over the period of the waiver (though states must still submit projected changes in federal spending for each year of the waiver).
Eliminates consideration of changes in Medicaid spending as a factor that would affect federal spending under the waivers.
|The effect on federal spending includes all changes in exchange financial assistance, other direct spending, such as changes in Medicaid spending, and changes in federal administrative costs associated with the waiver.||Eliminates language specifying that changes in Medicaid spending are included as part of changes in federal spending.|