Application, Review and Reporting Process for Waivers for State Innovation Summary of Proposed Rule Revised March 18, 2011

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1 Application, Review and Reporting Process for Waivers for State Innovation Summary of Proposed Rule Revised March 18, 2011 On March 10, 2011, the Departments of Health and Human Services (HHS) and Treasury made public a proposed rule setting forth a procedural framework for the submission and review of waivers for state innovation. The rule was published in the Federal Register on March 14 th. The state waivers are authorized by section 1332 of the Patient Protection and Affordable Care Act or the Affordable Care Act (ACA). The following provides a detailed summary of the proposed rule. Bold font is used to indicate where the Departments have explicitly asked for public comment. The 60-day comment period closes on May 13, I. BACKGROUND Section 1332 of the ACA permits a state to apply to the Secretaries of HHS and Treasury for the waiver of all or any specified requirements relating to qualified health plans, Exchanges, refundable premium credits and reduced cost-sharing for individuals enrolling in coverage through the Exchanges and the individual and employer responsibility requirements within that state for plan years beginning on or after 1/1/2017. As stated in the HHS announcement accompanying the proposed rule, President Obama supports bipartisan legislation that would make section 1332 waivers available to states beginning in 2014, 1 but the proposed rule follows the current law effective date of 1/1/2017. Section 1332 requires the Secretaries to issue regulations that provide procedures for: Public notice and comment at the state level; Submission of an application that ensures the disclosure of the provisions of law that the state involved seeks to waive and the state s specific plans to ensure that the waiver will be in compliance with federal requirements; Public notice and comment after the application is received by the applicable Secretary or Secretaries; Submission to the applicable Secretary or Secretaries of periodic reports by the state concerning the implementation of the program under the waiver; and Periodic evaluation by the applicable Secretary or Secretaries of the program under the waiver. In addition, Section 1332 requires the Secretaries to develop a process for coordinating and consolidating the state waiver processes and the existing waiver processes applicable under Medicare, Medicaid, CHIP and any other Federal law relating to the provision of health care items or services. This process must permit a state to submit a single application for a waiver under any or all of those programs. 1 See S. 248, Empowering States to Innovate Act, introduced on February 1, 2011 by Senators Ron Wyden and Scott Brown.

2 II. OVERVIEW OF THE PROPOSED REGULATIONS A. Introduction The Departments would add a new part 33 to 31 CFR Subtitle A (relating to responsibilities of the Department of Treasury) and a new part 155 to 45 CFR Subtitle A (relating to responsibilities of the Department of HHS). B. Coordinated Waiver Process States would have the option of submitting a single application for a section 1332 waiver and a waiver under one or more of the existing waiver processes under Medicare, Medicaid and CHIP or under any other federal law related to the provision of health care items or services. To submit a single application, however, the application would have to be consistent with the procedures for section 1115 demonstrations, if applicable, and the procedures under any other applicable federal law under which the state seeks a waiver. A state would submit a section 1332 waiver to the Secretary of HHS who would, in turn, transmit any application that includes a request under Treasury s jurisdiction (refundable tax credits and the individual and employer responsibility requirements) to that Department s Secretary to be reviewed in accordance with the provisions of these proposed regulations. The Secretaries would be required to coordinate the review of any application that includes a request for a waiver of provisions falling under the jurisdiction of each of the Departments. C. Application Procedures Under section 1332 of the ACA, the Secretary is required to make a determination of whether to approve a state waiver request within 180 days of receiving the state s application. The proposed rule interprets this requirement as within 180 days of receipt of the state s completed application. A state section 1332 waiver application would receive a preliminary review by the Secretaries within 45 days of submission of whether it complies with specific requirements. States submitting incomplete applications would be notified of the missing elements. A preliminary determination that an application is complete would not preclude a Department finding during the 180-day federal decision-making period that a necessary element of the application was missing or insufficient. Upon a determination by the Secretaries that the application was complete, the Secretary of HHS would send the state a written notice of the preliminary determination. This would mark the beginning of the federal public notice and comment period (described below) and the 180-day federal decision-making period. In addition to providing written evidence of the state s compliance with public notice requirements (see below), the waiver application would have to include the following: 1. A comprehensive description of the state legislation and program to implement a plan meeting the waiver s requirements;

3 2. A copy of the enacted state legislation authorizing the waiver request; 3. A list of provisions of law that the state seeks to waive and the reasons for the waiver; and 4. Analyses, actuarial certification, data assumptions, targets and other information sufficient to provide the Secretaries with the necessary data to determine that the state s waiver Will provide coverage at least as comprehensive as the coverage defined in section 1302(b) the ACA and offered through Exchanges as certified by the Centers for Medicare & Medicaid Services (CMS) Actuary based on sufficient data from the state and from comparable states about their experience with programs created by the ACA and the provisions of the ACA that would be waived; Will provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable as the provisions of Title I of the ACA would provide; Will provide coverage to a least a comparable number of its residents as provisions of Title I of the ACA would provide; and Will not increase the federal deficit. The ACA requires that the Secretaries provide for an alternative means by which the aggregate amount of tax credits or cost-sharing reductions that would have been paid, had the state not received a waiver, be paid to the state for implementing the waiver. The Secretaries would determine this amount annually, on a per capita basis, taking into consideration the experience of other states for participation in an Exchange and tax credits and cost-sharing reductions provided in those other states. To provide the necessary information for the Secretaries to determine whether the above waiver requirements are met, a state s application would have to contain certain information, including: 1. Actuarial analyses and certifications to support the state s estimates that it meets the comprehensive coverage, affordability and scope of coverage requirements. 2. Economic analyses to support the state s estimates that the waiver will comply with the above requirements, including a detailed 10-year budget plan that is deficit neutral to the federal government and includes all costs under the waiver and a detailed analysis regarding the estimated impact of the waiver on health insurance coverage in the state. 3. Demographic, health expenditure and health insurance coverage status data (including employment-based coverage) for the state s relevant population and an explanation of the key assumptions and methodology used to develop estimates for the waiver application. 4. Additional information supporting the state s proposed waiver, including explanations as to: whether the waiver increases or decreases the administrative burden on individuals, insurers, and employers, and if so, how and why; whether and how the waiver will affect implementation of the ACA s provisions which the state is not requesting to waive, both in the state and at the federal level; how the waiver will affect residents who need to

4 obtain health care services out-of-state, as well as the states in which such residents may seek such services, if applicable; how the state will provide the federal government with all information necessary to administer the waiver at the federal level; and how the state s proposal will address potential individual, employer, insurer, or provider compliance, waste, fraud and abuse within the state or in other states. 5. For monitoring once the waiver is awarded, suggested quarterly, annual and cumulative targets for meeting the different requirements (i.e., coverage, affordability and scope of coverage). 6. Other information consistent with guidance provided by the Secretaries. The proposed rule does not specify a minimum time between the submission by a state of a waiver application and the start date of the waiver. Comments are requested on whether a state should be required to submit an application at least 12 months in advance of the requested effective date to allow for effective implementation. Comments are also requested on whether the states consider the above required information to be useful in supporting an application for a section 1332 waiver. The question is also asked whether other types of state information and analyses would be useful and whether the regulations should specify these to be included in the waiver application. It is also proposed that the Secretaries be able to request additional supporting information from the state as needed to address public comments (see below) or to address issues that arise in reviewing the waiver application. D. State Public Notice Requirements To implement the provisions of section 1332 of the ACA to facilitate public involvement in the review and approval of state waiver applications, a state would be required to provide a public notice and comment period sufficient to ensure a meaningful level of public input prior to the submission of the state s application to the Secretary of HHS. In addition, a state with one or more federally-recognized Indian tribes within its borders would be required to consult with those Indian tribes. To provide for meaningful public input, the proposed regulations require a state to provide the public with the following prior to the submission of an application: 1. A comprehensive description of the section 1332 waiver application to be submitted to the Secretary of HHS; 2. Where copies of the section 1332 waiver application are available for public review and comment; 3. How and where written comments may be submitted and reviewed by the public, and the timeframe during which public comments may be submitted; and

5 4. The location, date and time of public hearings that will be convened by the state to seek public input on the section 1332 waiver application. A state would be required to conduct public hearings providing interested parties with the opportunity to learn about and comment on the section 1332 waiver application. In addition, the state public notice and comment process would have to comply with applicable civil rights laws for accessibility. E. Federal Public Notice and Approval Process A federal public notice and comment period would be required following a preliminary determination by the Secretaries that a state s application for a section 1332 waiver is complete. The Secretary of HHS would be required to provide the public with notice of a section 1332 waiver application that has been preliminarily determined to be complete, including any supplemental materials received from a state during the federal public notice and comment period, and regular updates of the status of a state s section 1332 waiver application. In addition, the Secretary would be required to provide the public with information relating to: (A) where copies of the section 1332 waiver application are available for public review and comment; (B) how and where written comments may be submitted and reviewed by the public, and the timeframe during which comments may be submitted; and (C) any public comments received during the federal notice and comment period. Following the conclusion of the federal notice and comment period, but in no event later than 180 days following the preliminary determination by the Secretaries that a state s application for a section 1332 waiver is complete, the Secretary of HHS would issue the final decision of the Secretaries on the application. F. Monitoring and Compliance Following a decision by the Secretaries to approve a section 1332 waiver, a state would be required to comply with all applicable federal laws, regulations, interpretive policy statements and interpretive guidance unless expressly waived. Within timeframes specified in law, regulation, policy, or guidance, a state would need to come into compliance with any changes in federal law, regulation, or policy affecting section 1332 waivers, unless the provision being changed was expressly waived. In addition, a state would have to comply with the terms and conditions of the agreement between the Secretaries and the state to implement a section 1332 waiver. Such a state also would have to perform periodic reviews of implementation. The Secretaries would review documented complaints that a state was failing to comply with terms and conditions of any approved section 1332 waiver. They would promptly share with a state any such complaint and also provide notification of any applicable monitoring and compliance issues. To ensure continued public input after the waiver s initial implementation, a state would have to hold a public forum with opportunity for public comment in order to solicit comments on the progress of the waiver. This would be required within 6 months after the actual implementation

6 date for a section 1332 waiver and annually thereafter. The state would have to submit a summary of the forum to the Secretary of HHS as part of its quarterly and annual reports. The date, time and location of the forum would have to be published in a prominent location on the state s public web site at least 30 days prior to the event. The Secretaries would reserve the right to suspend or terminate a section 1332 waiver in whole or in part, at any time before the date of expiration, whenever they determine that a state has materially failed to comply with the terms of a section 1332 waiver. In that event, federal funding is limited to normal closeout costs associated with an orderly termination, suspension, or withdrawal, including service costs during any approved transition period, and the administrative costs of disenrolling participants. A state would be required to fully cooperate with the Secretaries (or independent evaluator selected by the HHS Secretary) on an evaluation of any component of a section 1332 waiver. As part of this required cooperation, a state would have to submit all requested data and information to the Secretary or evaluator. G. State Reporting Requirements Section 1332 of the ACA requires that the Secretaries provide for a procedure for the periodic submission of reports by a state concerning implementation of their section 1332 waiver program. To effectively monitor the implementation of a waiver, a state would be required to submit a quarterly report and an annual report documenting progress of the waiver, data on compliance, a summary of the annual post-award public forum (including public comments) and other information consistent with the state s approved terms and conditions. A draft of the annual report would be due to HHS no later than 90 days after the end of each waiver year and the final within 60 days of receipt of the Secretary s comments. The draft and final annual reports would have to be published on the state s public website. Additional guidance will be issued regarding periodic reports. H. Periodic Evaluation Requirements Section 1332 of the ACA requires that the Secretaries provide for a procedure for their periodic evaluation of section 1332 waivers. It is proposed that each periodic evaluation include a review of all annual reports submitted by the state (see above) that relate to the period of time covered by the evaluation. Public comments are solicited regarding specific components of the periodic evaluation of a section 1332 waiver. Potential components could include, but not be limited to, the impact of the waiver on the following: Choice of health plans for individuals and employers; Stability of coverage for individuals and employers; Small businesses, individuals with pre-existing conditions, and the low-income population; The overall health care system in the state; and Other states and the federal government.

7 Future guidance will be issued regarding periodic evaluations. III. COLLECTION OF INFORMATION REQUIREMENTS The Departments discuss in this section the implications of the proposal rule for information collection as required under the Paperwork Reduction Act. They advise that they are unable to accurately quantify the paperwork burden until the provisions that section 1332 authorizes the Secretaries to waive pursuant to an application by a state take effect in Public comment is being solicited on the annual number of waiver applications that the Departments may receive, and the Departments will reevaluate this issue in future guidance. The Departments nonetheless have developed estimates of paperwork burden associated with information collection requirements in this proposed regulation. It is estimated, for example, that it would take a state 200 hours to develop and submit a complete section 1332 waiver application at a total cost of $4,134. A summary table of the estimates (both in terms of hours and the expected hourly labor costs) appears on page 39 of the display version of the proposed rule. Comments are requested on these estimates and should be submitted separately as directed in the proposed rule. IV. RESPONSES TO COMMENTS The Departments advise that while they consider all timely comments, they are unable to acknowledge or respond to them individually. They will, however, respond to the comments in the preamble of a subsequent document. V. REGULATORY IMPACT STATEMENT The Departments have determined that this proposed rule will not have a significant impact on a substantial number of small entities (e.g., small businesses) and will not mandate expenditures by the states in excess of the $136 million threshold that requires an impact analysis under the Unfunded Mandates Reform Act. In addition, since the proposed rule does not mandate state participation in section 1332 waivers, the requirements under Executive Order relating to federalism implications are not applicable.