On March 1, the Departments of Health and Human Services (HHS) and the Treasury approved New York’s section 1332 waiver that expands affordable coverage to additional groups of New Yorkers. The waiver essentially suspends New York’s Basic Health Program (the Essential Plan, or EP) and transitions those enrollees and some other eligibility groups into an affordable coverage program that mirrors the Essential Plan coverage. To ensure consumer recognition, the new coverage program is also called the Essential Plan (EP 2.0 for our purposes.) The waiver will cover 1.5 million people, extend affordable coverage to more than 100,000 people, and draw down nearly $66 billion in federal funds for the state.
Section 1332 Waivers Provide Opportunities for State Innovation
Section 1332 of the Affordable Care Act (ACA) allows states to waive certain provisions of the law if four guardrails are met. Waivers must:
- Provide coverage that is at least as comprehensive as the coverage provided without the waiver;
- Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable as without the waiver;
- Provide coverage to at least a comparable number of residents as without the waiver; and
- Not increase the federal deficit
If a state’s plan is projected to save federal money while meeting these guardrails, the state can receive this money as “passthrough” funding that can be used to support related health activities.
The majority of waivers to date have offset the states’ costs for reinsurance programs, but a new breed of 1332 waivers demonstrate innovative strategies to increase coverage and lower premiums. For example, Colorado's 1332 waiver captures passthrough funds from the state’s law enforcing premium reductions and uses a portion of that funding stream to supplement state subsidies for Marketplace coverage for people who are ineligible for federal health coverage subsidies, including undocumented immigrants. Similarly, Washington's waiver newly allows people who are undocumented to buy coverage on the Marketplace—something the ACA otherwise prohibits—in order to qualify for state subsidies.
New York’s Section 1332 Waiver Breaks New Ground
New York’s waiver takes a novel approach to a years-long quandary with its Basic Health Program (BHP). Under a BHP, the federal government reimburses a state for the value of premium tax credits (PTCs) for eligible enrollees with incomes up to 200 percent of the federal poverty line (FPL). New York’s EP has drawn down those federal funds and—due to BHP costs falling below the value of the PTC—has accumulated roughly $10 billion in its BHP trust fund as of 2023. Per federal statute, use of the trust fund is limited to improving affordability and increasing benefits for only BHP enrollees—flexibility that the state had largely maximized. Trust funds cannot be used to make coverage more affordable for people with higher incomes or people ineligible for federally-subsidized Marketplace coverage.
To maintain the EP’s structure and benefits and unlock the excess funds moving forward, New York’s new waiver does a two-step: it suspends its BHP and, in its place, creates a new program that is neither a BHP nor Marketplace coverage for existing EP enrollees and an expanded eligibility group. The new program, the EP 2.0, is expanded to cover people with incomes between 200 and 250 percent of the FPL (who are otherwise eligible for Marketplace coverage) and to the deferred action for childhood arrivals (DACA) population with income up to 250 percent of the FPL (who are otherwise barred from purchasing coverage or receiving PTC in the Marketplace). Finally, the waiver gives women who would otherwise be moved from the EP 2.0 to Medicaid when becoming pregnant the choice to stay in the EP 2.0 for pregnancy, delivery, and one year of postpartum care.
The transition to the EP 2.0 occurred on April 1, 2024, for current BHP enrollees and the Marketplace population with income between 200 and 250 percent of the FPL. Beginning August 1, 2024, the state will begin enrollment of DACA eligibles into the new program—the majority of whom are currently covered in Medicaid with state-only funds.
The state expects to draw down nearly $66 billion across the waiver’s five-year approval period. These funds will be used to bring down costs for the newly enrolled populations, including eliminating premiums and deductibles. On average, new enrollees with incomes between 200 and 250 percent of the FPL will save $4,700 per year compared to what they would have spent in the Marketplace, and the state will use passthrough funding instead of state funding for the DACA population.
Overcoming Hurdles on the Waiver’s Journey to Approval
New York’s waiver faced a few roadblocks along the way. First, there was no mechanism for “suspension” of a BHP, only termination, which would have resulted in the state losing the entire BHP trust fund. But in the 2024 Medicare Physician Fee Schedule Final Rule, HHS created a new BHP suspension option that New York promptly sought approval to implement, conditioned upon 1332 waiver approval. While there is no mechanism for accessing the accumulated funds during the suspension period, if the five-year 1332 waiver terminates, the state can revert to its BHP and reclaim its trust fund.
Second, removing the people with incomes between 200 and 250 percent of the FPL from the insurance risk pool was initially projected to raise premiums by up to 2.2 percent for unsubsidized Marketplace and off-Marketplace enrollees. This would occur because health insurance carriers accounted for covering more people in lower-premium products under the EP 2.0 that had previously been enrolled in Marketplace plans. In response, the state created a fund to reimburse carriers for their lost premium revenue. Under the Insurer Reimbursement Implementation Plan (IRIP), the state will survey carriers during the annual rate review process for their with- and without-waiver premiums, then “buy down” the higher premium to avoid passing increases on to consumers. The program will cost $43 million in 2024 and an estimated $63 million in future years.
Looking Ahead
New York’s 1332 waiver and the new Essential Plan 2.0 demonstrates the kind of innovation and coverage expansion that is possible under this provision of the ACA. New York can be expected to continue its affordable coverage campaign, including devising additional ways to use the billions of dollars in excess passthrough funds expected under EP 2.0. Advocates in the state have campaigned for a Colorado-style extension of coverage to people who are ineligible for federal premium subsidies.