Hawaii receives approval of 1332 State Innovation Waiver submission

Hawaii requested a 1332 State Innovation Waiver in order to preserve the state’s Prepaid Health Care Act (Prepaid) by exempting the state from requirements related to the Small Business Health Options Program (SHOP). Since the enactment of Prepaid in 1974, employers in Hawaii have been required to provide health insurance coverage that meets the evolving standards of Prepaid to employees working 20 hours or more per week, with some exceptions. In 2011, more than 480,000 non-union employees and their dependents were covered under employer-sponsored Prepaid-compliant plans.

To continue operating the small group market in Hawaii with a unique federal Employee Retirement Income Security Act (ERISA) exemption, the state sought a 1332 waiver that would allow it to continue to require small business to purchase insurance outside of the SHOP and maintain the more generous benefits of the state specific program rather than implementing the small business requirements of the Affordable Care Act (ACA). Hawaii passed Act 158 of 2014 (June 30, 2014) which provided the legislative authority to seek waiver from portions of the ACA in order to provide alternative methods for small business coverage that are budget neutral and the same aggregate of cost sharing and premium assistance that would be paid under the ACA. Additionally, this legislation aimed to ensure that any waiver proposed would move Hawaii as close as possible to universal health insurance coverage and access to care.

On December 30, 2016, the Centers for Medicare and Medicaid Services (CMS) approved the Hawaii 1332 waiver request to opt out of requirements related to the SHOP, specifically:
  • Section 1311(b)(1)(B). State establishment of a SHOP;
  • Section 1321(c)(1). Solely with respect to federal establishment of a SHOP in Hawai’i if the State elects not to establish a SHOP;
  • Section 1312(a)(2). Employee choice of qualified health plans (QHPs) at a single level of coverage under ACA section 1302(d), and made available through the SHOP;
  • Section 1312(f)(2)(A). Definition of “qualified employer”;
  • Section 1304(b)(4)(D)(i) and (ii). Continuation of participation in SHOP for growing small employers;
  • Section 1301(a)(1)(C)(ii). Definition of a QHP as one that agrees to offer at least one silver level plan and one gold level plan through an Exchange, solely with respect to the requirement that a QHP offer a silver and a gold level plan through the SHOP; and,
  • Section 1301(a)(2). Solely with respect to the requirement that CO-OPs and multi-state plans be recognized as QHPs in the small group market.
The waiver is effective January 1, 2017 through December 31, 2021. 

The immediate implications of the waiver approval include the following (as outlined in the Specific Terms and Conditions):

  • Small businesses will not be eligible for the Small Business Health Care Tax Credit for 2017, but will be for plan year 2016-2017 if an eligible employer has participated on SHOP. This will be replaced with the Prepaid Health Care Premium Supplementation Fund.
  • The state must promptly inform all employers who have received a Certification of Eligibility for participation in the Hawaii SHOP that no certifications will be granted for plans years beginning on or after January 1, 2017. Additionally, the state must share within 30 days a plan to ensure a smooth transition of the SHOP and communication plan with eligible employees and employers.
  • Within six months post award there shall be a public forum to allow for meaningful comment on the progress of the waiver.
  • Under section 1332(a)(3) of the ACA, the state will be entitled to funding based on the amount of Small Business Health Care Tax Credits that would have been provided to small employers under section 45R of the Internal Revenue Code absent the waiver but will not be provided under the waiver.
Vermont has also submitted a 1332 waiver, which is currently pending and seeks to waive the requirement that small employers enroll through a SHOP web portal and instead preserve its current direct enrollment process for small employers. 

PCG subject matter experts have been examining the use of waivers with state partners for the past few years. Our team published an overview of waiver opportunities under Section 1332; moving forward under the new administration, we will continue to follow closely the evolving use of 1332 waivers. We are available to answer any questions you may have about provisions of the ACA subject to waiver, limitations, or crafting of 1332 waiver submissions.