Alex Azar assumed office as HHS Secretary on January 29, 2018, and has hit the ground running.  Among discussions on stabilization bills (see blog post discussion here and how these proposals further the Administration’s efforts on Trump’s Inauguration Day Executive Order here), Secretary Azar has been a vocal advocate for, in his own terms, “state experimentation” under both the Medicaid and health insurance exchanges (“Exchanges”).

Secretary Azar has not provided detail as to what type of experimentation he would like to see from states, but in his remarks at HHS headquarters on Tuesday, February 20, he stated that he was working with the Centers for Medicare and Medicaid Services (CMS) Administrator, Seema Verma, to give states “a menu of options” to decrease the restrictions under the Affordable Care Act (ACA).  In particular, Secretary Azar noted that he was exploring ways to allow states greater flexibility through federal waivers.

The most relevant federal waivers are the Section 1115 waiver and Section 1332 waiver. The Section 1115 waiver (named for its section under the Social Security Act) permits the HHS Secretary to approve experimental, pilot, or demonstration projects that waive almost any Medicaid state plan requirement under §1902 of the Act, so long as they are likely to assist in promoting the objectives of the Medicaid program.  Section 1332 waivers (named for its section under the Affordable Care Act or ACA) similarly permit states to waive various provisions under the ACA and to allow states to undertake different approaches to achieving the ACA’s core goals. Similar to the Medicaid waiver, however, Section 1332 waivers are subject to “guardrails”—meaning that the approaches must be at least as comprehensive, affordable, and accessible, and do so at the same or lower cost to the federal government.

Although Secretary Azar is getting a lot of attention from his February 20 remarks on expanded state experimentation through waivers, the Trump Administration has already been hard at work providing guidance and approving unprecedented program waivers.

In March of 2017, former Secretary Price and CMS Administrator Verma released a letter to state governors, stating that they are “ushering in a new era for the federal and state Medicaid partnership where states have more freedom to design programs that meet the spectrum of diverse needs of their Medicaid population.”  Following this direction, on January 11, 2018, CMS released Medicaid guidance, detailing its support for state efforts to test incentives that make participation in work or other community engagement a Medicaid eligibility or coverage requirement. Less than 24 hours later, on January 12, CMS approved Kentucky HEALTH’s 1115 waiver—the first waiver approved under the Trump Administration. Less than a month later and only four days after Secretary Azar assumed office, on February 2, 2018, CMS approved Indiana’s Section 1115 waiver, known as the Health Indiana Plan or “HIP.”

Based on these CMS letters, guidance and waiver approvals, the predication of what’s to come and what Secretary Azar considers to be “state experimentation” under the Medicaid program is reasonably predictable. The Medicaid Guidance spoke directly to permitting work requirements as a condition of eligibility for Medicaid and both the Kentucky HEALTH and HIP waivers were approved with work requirements for the first time. As discussed in a Kaiser Family Foundation issue brief, the Kentucky HEALTH and/or HIP approved waivers imposed, for the first time, premiums at 4% of income, coverage lock-out periods for failure to timely renew or report income changes, and tobacco premium surcharges. Several states have pending waivers with one or more of these elements—including Arkansas, Arizona, Kansas, Maine, Mississippi, New Hampshire, Utah, and Wisconsin—and many expect Secretary Azar to approve at least these elements.

However, many states have pending Medicaid waivers that include elements that have not yet been approved—under the Trump and Obama Administrations. For instance, Maine and Utah’s Medicaid waivers seek to eliminate hospital presumptive eligibility, Wisconsin’s Medicaid waiver seeks to impose drug screening and testing, and Arkansas’ waiver seeks to use the ACA enhanced match for a partial expansion. (Id.) Only time will tell if Secretary Azar will deem these approvable experiments under Section 1115 Medicaid waivers.

Prior guidance under the Trump Administration has also been provided for Section 1332 Exchange waivers. The former Secretary Price sent a letter to state governors in March of 2017 and HHS issued a checklist in May of 2017, together providing encouragement and a roadmap for proposals that support reinsurance programs and high-risk pools. Following this guidance, at the end of 2017, HHS approved Alaska, Minnesota, and Oregon’s Section 1332 waivers, all seeking to set up various reinsurance programs. Remarking on his continued support for state reinsurance programs, Secretary Azar stated, “[f]or me that becomes quite important if we are not able to achieve so-called repeal and replace . . . do we have enough authority to really help states create sustainable individual markets with effective risk pooling mechanisms that can just deliver on what we hope would be affordable individualized insurance for people?”

While continued support for reinsurance and high-risk pool proposals under Section 1332 waivers is interesting, a more curious prediction relates to the growing discussion of short-term health plans or “junk plans.” The Washington Post reported on February 21, that Secretary Azar would like to broaden access and reliance on short-term health plans that fail to comply with the consumer protection requirements under the ACA. CMS Administrator Verma also commented on the matter, stating “[w]hile in the past these plans have been a bridge, now they can be a lifeline.” While potentially too far of a stretch to comply with the “guardrail” requirements under Section 1332, according to the New York Times, Secretary Azar has so far declined to take action against Blue Cross of Idaho, which is preparing to offer plans that fail to comply with the federal requirements, stating he “did not know the details because the state had not asked the federal government for a waiver of requirements in the [ACA].” These remarks come about a month after Idaho’s Governor, C.L. “Butch” Otter, issued an Executive Order and Guidance to Carriers for State Based Plans, encouraging “creative options which will expand Idahoan’s access to insurance and to approve plans meeting state requirements even if not all requirements of the Patient Protection and Affordable Care Act are met.” And, “[a]uthoriz[ing] the Director of the Department of Insurance to seek a waiver from the U.S. Department of Health and Human Services in conjunction with this Executive Order if the Director believes it is appropriate or necessary .” Despite this executive guidance, however, on February 26, the Idaho House Health and Welfare panel “spiked” a bill that would allow insurers to sell non-ACA compliant plans and that would have imposed a work requirement and five-year coverage limit for certain Medicaid recipients.

It is clear that Secretary Azar and CMS Administrator Verma seek a regulatory world that is greatly removed from the federal government. How far the Medicaid and Exchange waivers will go, what will be approved, and what will be upheld as legally permissible under Secretary Azar’s reign is a waiting game that for many is dangerously close to eroding the protections under the ACA.