Oklahoma is preparing a 1332 State Innovation Waiver for a customized ACA implementation in the state. It is an interesting concept and as the AHCA has failed to progress, I can see quite a few conservative states go down the 1332 route to tweak the ACA to fit local political and economic needs. And I’m okay with that.
So let’s see what Oklahoma identifies as the problem and what they then want to do with it:
Oklahoma continues to face a number of challenges related to providing individuals with access to affordable, quality, and sustainable health care coverage. Particularly telling of the necessity of swift intervention is the exodus of all but one carrier from Oklahoma’s individual insurance market for plan year 2017, premium increases in excess of 75% on average for plan year 2017, and participation of only 31% of eligible individuals for plan year 2016
They want more competition, more choices, lower premiums and more people covered. Those sound like reasonable objectives, so how will they do that?
They have a two year plan.
In 2018, they want to actually take responsibility for running their own insurance markets. States are the primary regulators and reviewers of insurance products sold in their state. However under the ACA if they declined to do so, the federal government would act in place of the state. CMS is not a state level regulating entity. They applied broad strokes of oversight but they were not familiar with state level policies nor objectives. Oklahoma wants to bring rate review and plan approval back in-house. They don’t need a 1332 for that, but this makes sense.
They also think that they can get improved quality and lower costs by having a coordinated quality metric program. That is ambitious.
The big deal in 2018 that requires a 1332 waiver is changing the age band from 3:1 to no more than 5:1. An actuarial fair age band is probably close to 9:2. This policy change will lower cost plans for young, non-subsidized buyers while hurting non-subsidized older buyers. It has no real effect on-Exchange besides the potential of slightly changing gap-optimization dynamics on-Exchange.
2019 is when things get complex. Oklahoma wants to do a lot:
- Move off Healthcare.gov and go to a state based marketplace
- Simplify administrative costs for carriers and change risk adjustment and re-insurance
- Change subsidies from 100-400% FPL to 0% FPL to 300% FPL (this sounds like a back door Medicaid Expansion)
- Use an HSA focused benefit design
- Get rid of metal tiers
- Minimize the required benefit package
- Tighten up eligibility requirements and verification requirements for off-season enrollment
This is a big deal. If implemented, it would be a uniquely Oklahoma solution to Oklahoma problems. Senator Wyden, the author of Section 1332 waivers, would say that this is what this section is designed to do instead of the minor technical adjustments and re-alignments that other 1332 waivers are seeking.
A key mechanical point that enables every change is moving Oklahoma to their own Exchange in 2019. Healthcare.gov has limited flexibility to support public facing 1332 waivers. A state based marketplace is a key enabling technology. By now, there are enough states with a stable technology platform that Oklahoma can probably buy a system off the shelf and modify it instead of developing from scratch. This will be expensive as an initial investment but not particularly high risk.
Oklahoma has identified the clear problem than insurance is confusing and tough. They want to use a high actuarial value (80% AV) common plan design:
; In an effort to improve ease of consumer understanding, actuarial value (AV) regulations will be simplified by establishing a standard minimum AV floor of 80% for all traditional plans. Traditional plans are defined as those plans that do not otherwise meet requirements to be a high deductible health plan (i.e., annual, individual deductible of $1,300 per IRS). This minimum AV will be coupled with easy-to-understand, fixed-cost descriptions of benefits.
This makes a lot of sense. Insurance is confusing. Standardized plans at a high AV are a good support tool. Most 80% AV plans will be HDHP with an HSA anyways.
There is a thought of managing and spreading high cost and high comorbidity risk. Oklahoma had operated a high cost risk pool pre-ACA but that was always under-funded with insufficient benefits. They are thinking about it again as the AHCA and Price’s 2015 plan had waived the talisman of cost segregation but they also advanced two modified risk concepts. The first is an externally funded, probably from the Feds, condition based risk pool. This is basically making risk adjustment look like Medicare Advantage widget payment risk adjustment. The second is a high cost re-insurance pool that spreads the cost of diseases around all carriers in the state. If they can get outside money to subsidize the super-expensive, this would be a good thing. Otherwise if it is just local money being shuffled around, it will change carrier strategy but not change total premiums.
Oklahoma wants to change the current 90 days of grace period after the first premium is paid to only 30 days. Before coverage could start again, past-due premiums would need to be paid. The objective of this change is to minimize any potential to game the system by people stopping coverage in October and then re-enrolling for January 1. It would marignally increase the number of low cost member months in the pool. This makes enough sense. I don’t know how much it would help the risk pool but it should not hurt it.
Now here is the meat of the changes:
The state aims to utilize federal funds that currently are being distributed to individuals at 100-400% FPL to those with 0-300% FPL while changing the way subsidies are calculated for all recipients. The state also assumes that federal funds will be available for eligible but not enrolled populations; that is, funds for eligible individuals not currently accessing APTC and CSR will be made available to the state….
Separately, eligibility for APTCs should reconsider current exclusions under the ACA. For instance, in current law, if insurance is offered by the employer, affordability is based on only the employee premium cost – not the cost for insurance for the employee’s spouse and/or children. The employee-only cost is often less that the 9.5% threshold;
The second paragraph is elimination of the family glitch. It will weaken the ESI market slightly but that is a valid trade-off.
The first paragraph is amazing. This is a backdoor Medicaid expansion where the state does not need to pay either the current 5% or long run 10% of the Medicaid costs of the expansion population. Heroic analytical assumptions will be needed to justify budget “neutrality” as Oklahoma wants to claim budget credit for people who are eligible but not enrolled. CMS has been willing to make heroic assumptions before when it suits their priorities. The Arkansas private option Medicaid expansion used absurd assumptions and handwaving to get to budget “neutrality.” If Sec. Price wants to shovel federal money to core Trump voters and pay providers high rates, he can probably do so. I have a hard time seeing who has standing and motivation to sue but I am not a lawyer.
Plan design also changes as carriers will offer two choices:
In lieu of metal tiered plans, plan options will be simplified to two standardized plan options: 1) a
comprehensive, traditional health plan with conventional cost-sharing and robust insurance coverage or 2) a high-deductible plan paired with a consumer health account. Consumers can choose to use their health accounts to purchase more comprehensive coverage or opt for lesser
coverage and more funds for first-dollar, out-of-pocket expenses available through their health account.
Subsidies are redesigned so that they are based on both age and income. I think they will not be tethered to a benchmark plan premium so individuals bear the risk of higher than expected premium increases. The goal is to have a subsidy that is large enough to make purchasing the standard plan affordable while allowing people to throw some money into an HSA if they choose the lower cost plan. This is a plausible set of trade-offs. I want to see the financials and the trade-offs for these scenarios. Low income (<100% FPL) people will need to get significant cost sharing assistance in the form of a very large subsidy to top themselves off and make themselves no worse off than if they were on Medicaid.
Oklahoma wants to do a lot for a 1332. The document that they have out there is a plan to have a plan. I spoke with an Oklahoma based analyst. They were pleasantly surprised that this proposal is still in the possibility space. Their concern was that Oklahoma has significant budget and cash constraint problems right now. Setting up a 1332 would have significant initial costs for new infrastructure and new regulatory capacity at a time when the state can barely keep current operations minimally funded.
I don’t think they have enough time nor details to get actuarial validation of their plans, gain CMS approval and then actually build the plans at the insurance companies in time for 1/1/18. I think they could do this with their 2018 goals pushed to 2019 and most of their 2019 goals pushed for the 2020 policy year. This is a complicated set of ideas with significant interaction between Medicaid, Exchange, employer sponsored insurance and Indian Health Services. Oklahoma could get approval but it is going to take some time.
I think there will be a major fight over using the 1332 process to effectively be a Medicaid expansion. Their budget and objectives for a high AV plan as the baseline plan will require heroic assumptions to gain approval. But if they can get a system where there is local buy-in to cover three quarters of a million people, I’ll wish them luck and hope for the best.