Businesses, labor unions and even entire states have been granted waivers exempting them from one provision of the Affordable Care Act. Opponents of the national health care reform law argue that these waivers are evidence that the new law is onerous and impractical. They also suggest that waivers were granted out of favoritism and that less-well-connected business and organizations will have to pay more to make up the difference.
Those criticisms are misleading and do not reflect the reasoning behind the waivers.
It's important to know two things about waivers. First, they were designed to allow businesses and insurance carriers time to comply with the law's provisions, not to sidestep them. Second, almost all of the waivers relate to a single provision of the Affordable Care Act and a type of health insurance coverage known as "mini-med" plans.
Mini-med plans are used by both small and large employers (such as McDonald's) for low-income and part-time employees. These health plans have very limited benefits in return for very low monthly premiums. Employees pay $20 to $30 per month in premiums. A mini-med plan's basic benefits might include a prescription drug discount card and coverage for doctor's visits. These plans can include surgical and hospitalization benefits, but they usually include dollar limits on coverage, which can be under $100 per day or about $250,000 for a year.
Over time, the Affordable Care Act law will eliminate low annual benefit caps like those in mini-med plans. The purpose of this provision is to keep people from losing coverage if the cost of medical treatment for a serious illness or accident is higher than the annual benefit cap. In that circumstance, the cost of treatment could become the responsibility of the patient, leading to financial hardship or bankruptcy.
The law stipulates that annual coverage limits cannot be lower than $750,000 for policy years starting between Sept. 23, 2010, and Sept. 23, 2011. Caps will be raised each year until 2014, when the law will prohibit individual and group health plans from placing annual limits on the dollar value of coverage. It is this provision that created the waiver issue.
Nearly 1.7 million Americans are on plans that have annual caps below $750,000. Estimates from employers and insurers indicated that phasing out annual limits in 2010 would have caused mini-med premiums to rise by more than 200 percent, forcing employers to drop coverage and sending many low-wage workers to purchase insurance on the more expensive individual insurance market.
As a result, individual states, insurance carriers that offer mini-med plans, businesses like McDonald's and unions like Service Employees International Union applied for waivers. Waivers were granted only if compliance would have increased premiums significantly or greatly reduced coverage. Thus, the waivers do not transfer costs to other sectors of the economy.
The reason the federal government believes that waivers will not be required after 2014 is the expectation that workers who have these limited plans will be able to purchase more affordable and higher-benefit coverage options through state-based health insurance exchanges. Low- and middle-income individuals who annually earn less than 400 percent of poverty ($43,600 for an individual and $89,400 for a family of four in 2011) would be eligible to receive premium credits and subsidies to help them do that. In addition, in 2014, the law expands eligibility for Medicaid so that those under the age of 65 earning up to 133 percent of the federal poverty level will qualify for coverage.
However, one contentious issue that would remain for employers that currently use mini-med plans are the employer-responsibility provisions in the Affordable Care Act. Businesses (like McDonald's) that offer insurance coverage (as well as those who do not) and have 50 or more full-time employees will be assessed a penalty should one or more of their full-time employees receive a tax credit to buy insurance through the exchanges.
Unanticipated consequences could result. Will it be more cost-effective to drop coverage and pay the penalty? Will employers adjust employee hours to avoid the full-time employment requirement, hire fewer employees in order to increase salary levels or maintain staffing levels under the 50-employee threshold? How this will all end up in 2014 is not entirely clear.
So, some uncertainties remain, but the waiver issue does not work as a blanket indictment of the Affordable Care Act. Nor is it an acknowledgement that the new reforms are flawed in some expansive and fundamental way.
An additional note on waivers. Last week, the Obama administration said that waiver approvals will not be released on a monthly basis. Previously, the Centers for Medicare and Medicaid Services announced new waivers monthly, and opponents used each announcement to denounce the new law.
As of the end of May 1,433 one-year waivers had been granted. Applicants will have until September 22 to apply for or extend a waiver, and those waivers will be in force until January 2014, when the majority of the Affordable Care Act's provisions take effect. At that point, all waiver recipients would have to comply with all provisions of the new law.