This week, the Department of Health and Human Services (HHS) released new guidance that will now permit states to allow consumers to use Affordable Care Act (ACA) subsidies toward health coverage options that do not meet ACA benefit standards. The proposals, issued as final guidance to states, would circumvent the formal federal rulemaking process which requires a public comment period.

Formerly known as “1332” waivers, the renamed State Relief and Empowerment Waivers will allow states to experiment with using ACA subsidy funds in the following ways:

• Permit consumers to purchase health plans that do not comply with ACA standards, including catastrophic-only plans.
• Create individual accounts, in which consumers, including those with employer-based health coverage, would use federal ACA subsidies, tax-deferred savings funds and other employer-based health funding toward health insurance premiums.
• Permit states to create their own insurance subsidy program.
• Create state-based reinsurance programs or high-risk pools.

States applying for the State Relief and Empowerment Waivers would have to guarantee coverage and cost protections for people with preexisting conditions and meet additional “guardrails” for ensuring comprehensive, affordable, health coverage that does not increase the federal deficit.

The availability of these new waivers would undermine the creation of national essential benefit standards and the requirement that federal insurance subsidies only be used to purchase non ACA-compliant health plans, two of the ACA’s most basic elements.  Several patient advocacy groups have questioned the legality of using a final guidance document to circumvent ACA insurance requirements.  It is expected that HHS guidance policy will soon be challenged in court.