Speech: Remarks by Administrator Seema Verma at the CMS National Forum on State Relief and Empowerment Waivers

Remarks by Administrator Seema Verma at the CMS National Forum on State Relief and Empowerment Waivers 
(As prepared for delivery – April 23, 2019)

It’s truly a pleasure to welcome you to the CMS National Forum on State Relief and Empowerment Waivers. It was just six months ago that President Trump stood where I’m standing today to announce the Administration’s new direction to lower prescription drug prices, making it very clear that in health care, it is not business as usual on his watch.

It's energizing to be in a room with state officials discussing the opportunities for locally-led reform. I'm glad to hear that we have members of the national press watching our live stream, who I hope take note.

If you spend too much time inside the beltway, it’s easy to become disconnected from the innovation happening in state capitols across the country.

Of course, thinking outside the box is what state governments are doing all the time. No wonder states have long been held up as laboratories of democracy—driving innovative policy reforms forward. This isn’t surprising to any of us, because all of you certainly know that the Federal government just isn’t as nimble and responsive as state governments. 

While the ACA imposed massive new regulations and costs on health care, there was at least a recognition that states might want to try different approaches. After all, states have historically been in charge of regulating insurance.

The ACA includes a provision under section 1332 that allows states to waive certain ACA regulations to design and implement new state health care programs.  

We’re all here today to focus on how states can better take advantage of this flexibility under the law.

I came to this job with a belief that Washington doesn’t have all the answers when it comes to our health care needs…that states are the testing grounds of innovation and reform…and that care decisions centralized in Washington too often come at the expense of patients. So, one of our goals here at CMS is to be a strong supporter of states, helping them pursue their vision and their solutions.

The problem with federalizing health care policy

This view is quite the contrast to the “Medicare for All” proposals that we’re seeing emerge from Congress. These proposals would actually end private insurance and put the wellbeing of every American patient in the hands of Washington officials.

Looking at the short history of the ACA should be proof enough for why it’s such a mistake to double down on government solutions. 

After the ACA’s main requirements were implemented in 2014, it didn’t take long at all for premiums to begin to escalate and insurers to begin leaving the market. In the fall of 2015, a number of states began reporting substantial premium increases for the 2016 benefit year, nine states in all saw average premiums on the individual market rise by more than 20 percent in that one year. 

For a high-resolution version of the included slides, click here.

The next year, these premium increases spread across the country. Average monthly premiums in the individual market increased by 21 percent for the 2017 benefit year. In all, 27 states saw premiums rise by more than 20 percent that year, which included all nine states that had experienced 20 percent or higher rate hikes the previous year.  Yes, that means nine states suffered back-to-back premium hikes exceeding 20 percent.

For a high-resolution version of the included slides, click here.

At the same time premiums increased, enrollment dropped by 10 percent in 2017. Most of this drop in enrollment occurred among the unsubsidized portion of the market, which experienced a 20 percent drop for the year.¹ That represented 1.3 million unsubsidized people leaving the market.

For a high-resolution version of the included slides, click here.

Now these are averages and some states experienced far more substantial premium increases and enrollment declines. For example, premiums in Arizona increased by an astonishing 97 percent while enrollment among the unsubsidized dropped by 73 percent.

At the same time premiums were rising, insurers began fleeing markets across a substantial portion of the country.  The number of issuers participating on Healthcare.gov nationwide declined by 28 percent in 2017 and another 21 percent in 2018.² As a result, more than half the counties in America had just a single issuer that year.³

For a high-resolution version of the included slides, click here.

With no competition, these monopoly issuers have the market power to hike rates. In fact, a recent study found that Exchange premiums were 50 percent higher, on average, in rating areas with a monopolist insurer compared to those with more than two insurers.⁴

Actions to expand state authority

On his first day in office, President Trump issued an executive order to agencies to minimize the economic burden of the law and “to provide greater flexibility to States and cooperate with them in implementing healthcare programs.” 

Within three weeks CMS issued a market stabilization rule, and, building on that rule, CMS then issued the 2019 Payment Notice. Collectively, these rules delivered on a number of policies that industry analysts and state officials, including many of you, recommended to help strengthen the markets. In addition, they gave states new tools and flexibility in regulating their insurance markets to lower premiums and increase choice. 

And it worked.

I’m pleased to report that we are starting to see results. For the first time since the ACA’s implementation, we’ve seen average premium rates decline by 1.5 percent for plans selected on HealthCare.gov.⁵ While this decline might be modest, it’s a substantial departure from the double-digit premium increases the market suffered in recent years. And this is just an average. Some states saw larger drops, including an 18 percent drop in Tennessee and a 16 percent drop in New Hampshire.

We’re also seeing a boost in insurer participation. For 2019, there are 23 more issuers participating on HealthCare.gov than 2018. As a result, only five states will have one issuer, compared to ten states last year. 

I’m also very pleased to report that, just last week, we finalized a reduction in the user fee on issuers participating in the federal Exchange thanks to the successful efforts to improve the efficiency of Exchange operations. The savings from this reduction will pass directly to consumers in the form of lower premiums. 

While this is all positive movement, we recognize the ACA’s serious problems remain. Many Americans continue to be priced out of the market and there are 28.5 million uninsured.⁶ As a result, enrollment among unsubsidized people continues to decline.⁷ The average monthly premium for a family of four on HealthCare.gov is over $1,500, which can easily exceed the family’s mortgage.⁸ There are areas of the country with far higher premiums. A 60-year-old couple living in Grand Island, Nebraska, making $70,000, will need to pay over $3,000 per month. That’s almost $38,000 per year for the lowest cost silver tier plan with an $11,100 deductible. That’s over half their income.

It is no wonder Americans are increasingly concerned about health care. The ACA did nothing to address the underlying problems behind rising health care costs in this country. Health care costs continue to be on a trajectory to consume nearly 1 in every 5 dollars of the nation’s economy by 2027.  At the end of the day, we have to address rising health care costs because that is what is increasing premiums.

So, while the steps outlined above are moving us in the right direction, they were steps to build on, not to rest on.

Given the current constraints on addressing these problems legislatively, we’re not going to stand still and wait while millions of Americans are struggling to access affordable coverage. This Administration has taken immediate, appropriate, and necessary administrative actions to promote more choice and affordability. But we also know there are opportunities for states to take action.

As long as we have this unworkable law in place, we simply have to offer states flexibility to work towards real solutions.

Therefore, and this is what we are all here to discuss today, last fall the Administration issued new guidance expanding state flexibility to waive certain ACA requirements through a waiver under section 1332 of the law. 

New 1332 Guidance Expands State Flexibility

Under the law, states have significant opportunities to chart a different course. States can seek waivers of certain federal requirements as long as their proposal meets a set of four guardrails.

Unfortunately, guidance issued under the prior administration in December 2015, significantly thwarted the types of creativity and innovation states could pursue. The prior administration imposed a one-size-fits-all approach to these waivers, making it difficult for states to address the specific needs of their citizens.

Before I came to CMS, I can tell you from my experience with states, it was impossible to put forward ideas. I worked with states on 1332 waivers and found the prior guidance to be extremely limiting.

With this unnecessarily restrictive guidance in place, very few states have come forward with innovative new strategies because the guidance tied their hands. To date, we have approved eight waivers. And, all but one of these waivers have been for states to create their own reinsurance programs. While these reinsurance waivers offer states an important tool to reduce premiums, they really represent the first step in stabilizing the market and bringing down premiums. We believe reinsurance waivers barely touch the surface of what may be possible.

In response to numerous state requests to help them address some of the ACA’s most onerous and limiting requirements, the new guidance gives states the flexibility they need to increase choices for their citizens, promote market stability, and more affordable coverage. 

The guidance increases flexibility with respect to the guardrails. The guidance also provides new functionality for states to leverage components of the federal Exchange platform. Finally, and to be very clear, the new guidance does nothing to change the ACA’s pre-existing condition protections. The protections cannot be waived, and a waiver cannot be approved that might otherwise undermine these protections. And, regardless, this administration stands committed to protecting people with pre-existing conditions.

Waiver Templates

We didn’t stop with issuing the new guidance. Based on my former work with states, I knew states would benefit from further details on what can be possible through a 1332 waiver. To help stimulate innovation and spur further discussion, last November we also released a series of waiver concepts that illustrate how states might take advantage of these new flexibilities.

Later today, we’ll also be going over these concepts in more detail, but I do want to highlight the fact that these concepts offer a real opportunity for states to provide better coverage to people with pre-existing conditions. Today, we know that the ACA has not delivered on its promise to people with pre-existing conditions.  In particular, if you are unsubsidized and have a pre-existing condition, coverage on the individual market has likely become unaffordable to you.  If that couple in Grand Island, Nebraska that I mentioned before has a pre-existing condition, they’re not going to be able to drop over half their income on a premium. They’ll have to find another way or go uninsured.

Furthermore, plans on the individual market generally have high deductibles and cost-sharing requirements that are not designed for people with pre-existing conditions. When you know you’ll spend through a $7,000 deductible in just a few months and need access to a particular doctor, the growing number of high-deductible, narrow network plans are just not for you.

Through the risk stabilization waiver concept, states have the flexibility to develop a different approach that can provide better coverage options for people with pre-existing conditions while at the same time reducing premiums for everyone else. So far seven states have implemented reinsurance programs that fund people with high claims costs and, therefore, remove these costs from the individual market risk pool. By removing these costs, reinsurance lowers premiums for everyone in the market. Premium savings ranged from 8 percent in Oregon to 30 percent in Maryland. 

Reinsurance is what many states are already doing, but we’re here to think about new ideas states can pursue. In addition to the reinsurance concept, the waiver concepts we’ll be discussing today highlight a new type of high risk pool approach to provide better coverage for people with pre-existing conditions. This would provide an opportunity to better tailor coverage for people with pre-existing conditions while lowering premiums for everyone else just the same as reinsurance.  

Some have criticized the new guidance and waiver concepts because they claim there is an opportunity for states to adopt waivers that undermine the individual market risk pool and, as a result, make the market more expensive for people with pre-existing conditions. These critics claim that giving states the opportunity to offer new options to purchase health plans outside the individual market, such as short-term, limited duration insurance, could pull healthier people out of the market and undermine coverage available to people with pre-existing conditions who remain in the market.  

Again, I want to make clear that a waiver cannot undermine coverage for people with pre-existing conditions. While the new guidance creates more flexibility with respect to the guardrails, the guardrails remain in force and continue to provide strong, meaningful protections. Any state waiver will need to carefully account for any impact on the individual market risk pool and guarantee that people with pre-existing conditions continue to have access to coverage that is at least as comprehensive and affordable as before.

So, if a state is to allow subsidies to be used for short term plans, they must have a solution for how to continue to guarantee access to the same level of affordability and comprehensiveness for people who remain in the individual market.

While we’re focused on 1332 waivers today, we will also spend a short time identifying some new opportunities for states in the Medicaid program. When the key people working with states on Medicaid waivers are already in the building, it seemed a waste not to invite someone down to provide an update on what we’re doing to give states more tools to improve their Medicaid programs.

Next, you will hear from my Senior Counselor Calder Lynch on these opportunities. As states consider possibilities under 1332, we want states to keep in mind how a 1332 waiver can be part of a more comprehensive health care program that provides a continuum of coverage from a Medicaid 1115 waiver to a 1332 waiver.  A state does not have to have one coverage model for low-income adults on Medicaid and a completely different one for people with premium subsidies. Income fluctuates, and we want people to strive for financial independence. Recognizing this, a state could design one seamless structure that guarantees people have access to affordable health insurance in the private market while removing barriers to upward mobility.

At CMS we are focused on being a strong partner with states. Whether you are working on a 1332 waiver, 1115 waiver or other options, our staff are here to help you as you work to develop better healthcare programs.

Look, we’ve given you options and now you have the power to make the individual markets work through innovative policies that best meet the needs of your citizens. We are returning freedom, authority and innovation to you, state leaders.

Since we published our guidance last November, my staff has held regional forums for states across the country in Illinois and Georgia – and the innovative thinking there was impressive. And we have another session coming up next month in Denver.

But today, we are bringing the conversation to Washington. Now with you all here in the Great Hall of HHS – we are ready to talk about great ideas that will accomplish great things. I am looking forward to an inspiring day.

Thank you all for coming today and thank you for your leadership as you pursue innovative solutions to provide more choice and affordability to all Americans.