This week, JLF’s Jordan Roberts published a research brief on the actions states are taking to lower the cost of health care for their citizens, specifically what Georgia plans to do under its Section 1332 waiver. A Section 1332 waiver – often called an “innovation” waiver – allows states to bypass some of the requirements of the Affordable Care Act (ACA) to pursue a different strategy for reducing health care costs. Roberts explains:
For a section 1332 waiver to be approved, state officials would have to show HHS [U.S. Department of Health and Human Services] that their new alternative will function in accordance with the following guardrails: “provide coverage at least as comprehensive as that provided under the ACA; provide coverage and protection against excessive out-of-pocket expenditures at least as affordable as that provided under the ACA; cover a number of residents at least comparable to the number who would be covered under the ACA; and not increase the federal deficit.”
Roberts illustrates how one state, Georgia, could potentially lower health care costs with a Section 1332 waiver. He writes:
Georgia was the most recent state to come out with a plan to restructure its insurance markets under section 1332 of the ACA. Georgia Access, as the plan is called, followed the path of other states by proposing a reinsurance program.
Reinsurance is a “stop-loss” insurance for insurance companies. Just like with your personal health insurance, insurance companies pay a premium every month to have this reinsurance. If their payouts pass their “attachment point” (exactly like your deductible – a cost threshold at which reinsurance start covering expenses) – reinsurance starts to pay a portion of the company’s payout to hospitals.
Just like your health insurance protects you from paying large medical bills in full, reinsurance protects insurance companies from having to cover large payouts in full. If a company never reaches its attachment point, the reinsurer (in this case, the state) keeps all the premium money. But if the company’s expenses surpass its attachment point, the reinsurance company starts paying.
Reinsurance lowers the risk that insurance companies will have to make exceptionally large payouts to hospitals. This lower risk is passed on in savings to customers. Roberts says:
According to the proposal, the plan estimates a reduction in premiums by an average of 10 percent in 2021 and an additional 30,000 individuals enrolled in the individual market. The plan emphasizes rural and non-competitive areas where premiums are estimated to decrease by more than 10 percent.
Georgia will also allow people to buy non-ACA compliant plans with their subsidies. Roberts explains:
The ACA imposed costly mandates on every health plan sold in this market, so much that the plans became unaffordable for many. By allowing non-ACA compliant plans to compete on the market, Georgians will have the ability to choose plans that fit their health needs and use subsidies for plans such as association health plans. Georgians would not buy these plans from Healthcare.gov, however. Instead, they would go straight to the source and buy plans directly from brokers or insurance companies.
Lastly, the subsidies could be combined with Health Reimbursement Accounts (HRAs). HRAs are employer-funded accounts that pay for employees’ out-of-pocket medical expenses. They are much like an HSA of an FSA, but only employers can contribute to them.
This is a bold plan, and it has not been tried before. States like Georgia continue to show that they are the true leaders in health care innovation despite federal mandates.