ACA Waivers and State Innovation Programs

Section 1332 of the Affordable Care Act authorizes states to apply for waivers that allow them to restructure key elements of ACA coverage requirements within defined federal guardrails. These programs, formally called State Innovation Waivers, give states flexibility to experiment with market structures, subsidy delivery mechanisms, and coverage frameworks while maintaining core consumer protections. Understanding how these waivers operate matters for employers, insurers, and consumers because approved waivers can change the rules that govern marketplace plans, premium tax credits, and cost-sharing arrangements within a given state. For broader regulatory context, the regulatory context for the ACA covers the federal statutory framework within which waivers function.

Definition and Scope

A Section 1332 State Innovation Waiver is a formal federal authorization, issued jointly by the U.S. Department of Health and Human Services (HHS) and the U.S. Department of the Treasury, that allows a state to waive specific ACA provisions and substitute alternative coverage arrangements. The statutory authority appears at 42 U.S.C. § 18052.

Waivers under Section 1332 can apply to four categories of ACA provisions:

The essential health benefits requirements (Section 1302)
The actuarial value and cost-sharing requirements (Sections 1302 and 1303)
The qualified health plan certification standards (Section 1311)
The premium tax credit and cost-sharing reduction rules (Sections 1401–1402)

The individual mandate provisions under Section 5000A and employer mandate provisions under Section 4980H are not waivable under Section 1332. A waiver also cannot reduce the coverage available to residents below the level they would have received under unmodified ACA rules — a standard known as the "no worse off" requirement — and cannot increase the federal deficit over the ten-year budget window (CMS Section 1332 guidance).

How It Works

The Section 1332 process follows a structured sequence governed by federal regulations at 45 C.F.R. Part 155, Subpart N and corresponding Treasury regulations.

Step 1 — State Legislative or Regulatory Authority
A state must demonstrate it holds legal authority under state law to implement the proposed alternative program. Federal rules require this authority to be enacted before a complete application is submitted.

Step 2 — Public Notice and Comment
The state must conduct a public comment period of at least 30 days at the state level. A separate federal public comment period of at least 30 days follows submission to HHS and Treasury.

Step 3 — Federal Application Review
HHS and Treasury jointly assess whether the proposal satisfies the four statutory guardrails: coverage must be at least as comprehensive, cost-sharing must be at least as affordable, at least as many state residents must be covered, and the federal government must not bear additional net costs.

Step 4 — Pass-Through Funding
If approved, the federal government transfers "pass-through" funding to the state — an amount equal to what would have been paid in premium tax credits and cost-sharing reductions under the original ACA framework. States use this funding to support their alternative program.

Step 5 — Implementation and Reporting
Approved waivers run for an initial period of up to 5 years and are renewable. States must submit annual reports to HHS and Treasury demonstrating ongoing compliance with the guardrails.

Common Scenarios

State-Based Reinsurance Programs

The most common approved use of Section 1332 waivers has been the establishment of state reinsurance programs, also called invisible high-risk pools. Alaska, Minnesota, Wisconsin, and more than 10 other states have received 1332 approvals for reinsurance mechanisms that reduce insurer risk on high-cost claims, thereby lowering premiums in the individual market. The Alaska Reinsurance Program, approved in 2017, was among the earliest operational examples (CMS 1332 Waiver list).

Alternative Plan Structures

Oregon has used 1332 authority to explore alternative plan designs that modify how actuarial value is expressed. States with approved waivers can authorize non-QHP plans to receive premium tax credits, provided those plans still meet the coverage and affordability guardrails.

Individual Market Restructuring

Some states have used 1332 waivers to restructure how individuals access subsidies — routing assistance through state-operated mechanisms rather than the federal marketplace. This approach requires the state to maintain an enrollment infrastructure that performs the income verification and eligibility functions otherwise handled by HealthCare.gov.

Contrast: Section 1332 vs. Section 1115 Waivers

Section 1115 waivers, administered by CMS under the Social Security Act, apply specifically to Medicaid and CHIP programs — not to marketplace coverage. A Section 1332 waiver modifies individual market and subsidy rules; a Section 1115 waiver modifies Medicaid eligibility or benefit structures. The two mechanisms can operate in parallel within the same state but govern distinct program areas. The ACA's broader coverage landscape addresses how both Medicaid expansion and marketplace programs interact.

Decision Boundaries

Not every state flexibility option requires a Section 1332 waiver. The decision boundaries that determine whether a waiver is necessary include:

Pre-existing state flexibility: States already have authority to impose stricter insurance regulations on top of ACA minimums without a waiver (e.g., requiring richer essential health benefits than the federal floor).
Subsidy structure changes: Any alteration to how federal premium tax credits flow to consumers requires 1332 approval because it involves federal transfer authority.
QHP certification departures: If a state wants non-QHP plans to count as qualifying coverage for subsidy eligibility, a waiver is mandatory.
Deficit neutrality limit: A proposal that would require the federal government to spend more than the pass-through amount cannot be approved under current statutory authority.
Medicaid interaction: Changes to Medicaid eligibility thresholds or benefits fall outside Section 1332 scope entirely and require a separate Section 1115 process.

States pursuing 1332 waivers must also coordinate with their State Insurance Commissioner's office, since the alternative mechanisms must comply with state insurance law as well as the modified federal framework.

References

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)