3 Key Questions: Section 1115 Medicaid Demonstration Waivers
Section 1115 Medicaid demonstration waivers provide states an avenue to test new approaches in Medicaid that differ from federal program rules. Waivers can provide states considerable flexibility in how they operate their programs, beyond what is available under current law, and can have a significant impact on program financing. As such, waivers have important implications for beneficiaries, providers, and states. While there is great diversity in how states have used waivers over time, waivers generally reflect priorities identified by states and the Centers for Medicare and Medicaid Services (CMS). Looking ahead, states are likely to continue to request waivers to implement provisions not allowed under current law; however, it is not yet clear what role Section 1115 waivers will play as the new administration and Congress move to repeal the ACA and debate possible broader changes to Medicaid financing. This brief answers key questions about Section 1115 waiver authority, the current landscape of demonstration waivers and what to watch going forward.
What are Section 1115 Medicaid waivers and how do they Work?
Authority and Purpose. Under Section 1115 of the Social Security Act, the Secretary of HHS can waive specific provisions of major health and welfare programs, including certain requirements of Medicaid and CHIP. This authority permits the Secretary to allow states to use federal Medicaid and CHIP funds in ways that are not otherwise allowed under the federal rules, as long as the Secretary determines that the initiative is a “experimental, pilot, or demonstration project” that “is likely to assist in promoting the objectives of the program.” States can obtain “comprehensive” Section 1115 waivers that make broad changes in Medicaid eligibility, benefits and cost-sharing, and provider payments across their programs. There also are narrower Section 1115 waivers that focus on specific services or populations. While the Secretary’s waiver authority is very broad, there are some elements of the program that the Secretary does not have authority to waive, such as the federal matching payment system for states, or requirements that are rooted in the Constitution such as the right to a fair hearing. Waivers are typically approved for a five-year period and can be extended, typically for three years.
Financing. While not set in statute or regulation, a longstanding component of Section 1115 waiver policy is that waivers must be budget neutral for the federal government. This means that federal costs under a waiver must not exceed what federal costs would have been for that state without the waiver, as calculated by the administration. The federal government enforces budget neutrality by establishing a cap on federal funds under the waiver, putting the state at risk for any costs beyond the cap.
Transparency, Public Input and Evaluation. The Affordable Care Act (ACA) made Section 1115 waivers subject to new rules about transparency, public input and evaluation. In February 2012, HHS issued new regulations that require public notice and comment periods at the state and federal levels before new Section 1115 waivers and extensions of existing waivers are approved by CMS.1 2 The ACA also implemented new evaluation requirements for these waivers, including that states must have a publicly available, approved evaluation strategy. States also must submit an annual report to HHS that describes the changes occurring under the waiver and their impact on access, quality, and outcomes.3
What is the Current Landscape of Section 1115 Medicaid waivers?
Understanding the landscape of current waiver activity can serve as a useful baseline for analyzing potential changes under a new administration. States have used waivers for many purposes, including to expand coverage, change delivery systems, alter benefits and cost-sharing, modify provider payments, and quickly extend coverage during an emergency. Increasingly, states are using Section 1115 waivers to combine programs (e.g., including authorities otherwise available under Section 1915 (b) managed care waivers and/or Section 1915 (c) home and community based services waivers, along with Section 1115 authority for other eligibility, benefits, delivery system and payment reforms) under one single authority. As of February 2017, 33 states had approved Section 1115 waivers (not including family planning or CHIP-only waivers). Some states have multiple waivers, and many waivers are comprehensive and may fall into a few different areas. Major areas of focus of current state Section 1115 waivers include delivery system reform initiatives, especially efforts that tie provider incentive payments to performance goals; implementation of alternative ACA Medicaid expansion models; authorizing the delivery of Medicaid long-term services and supports (LTSS) through capitated managed care; integrating physical and behavioral health or providing enhanced behavioral health services to targeted populations, and responding to public health emergencies and providing coverage for other targeted groups (Figure 1). These themes are discussed in more detail below (also see Appendix A).
Delivery System Reform Waivers. Sixteen states have approved waivers that focus on delivery system reform initiatives, especially efforts that tie provider incentive payments to performance goals. These states are using Section 1115 expenditure authority to authorize spending of federal dollars on delivery system reforms that otherwise would not be available under current law.4 Ten of these states are using Section 1115 waivers to implement Delivery System Reform Incentive Payment (DSRIP) initiatives. 5 6 DSRIP initiatives have emerged as part of broader Section 1115 waiver programs and provide states with significant federal funding that can be used to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries. Originally, DSRIP initiatives were more narrowly focused on funding for safety net hospitals and often grew out of negotiations between states and HHS over the appropriate way to finance hospital care. Now, however, they increasingly are being used to promote a far more sweeping set of payment and delivery system reforms. Under DSRIP initiatives, incentive funds to providers are tied to meeting performance metrics. A few other states have approved Section 1115 waivers for federal investment in delivery system reform initiatives other than DSRIP including Alabama’s provider-based Regional Care Organizations (RCOs), Arizona’s initiative to integrate physical and behavioral health care, Oregon’s Coordinated Care Organizations (CCOs), and Vermont’s all-payer ACO model. Florida and Tennessee as well as several states with other delivery system reform initiatives (Arizona, California, Kansas, Massachusetts, New Mexico, and Texas) also use Section 1115 authority to operate Uncompensated Care Pools, to help defray the cost of uncompensated hospital care.
ACA Expansion Waivers. A few states have sought Section 1115 waivers to implement the ACA’s Medicaid expansion, in part because they could not otherwise secure political support to expand coverage. As of February 2017, seven states (Arizona, Arkansas, Iowa, Indiana, Michigan, Montana, and New Hampshire) have approved waivers to implement the ACA Medicaid expansion in ways that extend beyond the flexibility provided by the law. While the waivers are each unique, they include some common provisions including: implementing the Medicaid expansion through a premium assistance model; charging premiums beyond what is authorized in federal law; eliminating non-emergency medical transportation, an otherwise required benefit; and using healthy behavior incentives to reduce premiums and/or co-payments (Table 1). Indiana’s waiver included provisions that had not been approved in other states including allowing the state to waive retroactive eligibility (later approved in New Hampshire and Arkansas); making coverage effective on the date of the first premium payment instead of the date of application; and barring certain expansion adults from re-enrolling in coverage for six months if they are dis-enrolled for unpaid premiums (a lock-out of up to three months for certain expansion adults was later approved in Montana).7
|Table 1: Themes in Approved ACA Expansion Waivers|
|Premium Assistance||QHP & ESI||ESI||ESI||QHP||QHP|
|Premiums / Monthly Contributions||X||X||X||X||X||X|
|Healthy Behavior Incentives||X||X||X||X|
|Waive Required Benefits (NEMT)||X||X|
|Waive Retroactive Eligibility||Xii||X||X|
|Co-payments Above Statutory Limits||Xiii|
|12-Month Continuous Eligibility||X|
|Notes: “QHP” refers to Qualified Health Plans. “ESI” refers to employer-sponsored health insurance. i-AR waiver provides authority for state to not offer NEMT for individuals covered through ESI who do not demonstrate need for services. ii-AR waiver includes conditional waiver of retroactive coverage, contingent upon state coming into compliance with statutory and regulatory requirements related to eligibility determinations. iii-Cost-sharing waiver approved in IN under Section 1916(f), not Section 1115.|
MLTSS. Twelve states are using Section 1115 waivers to authorize the delivery of Medicaid long- term services and supports (LTSS) through capitated managed care. While various Medicaid state plan authorities enable states to expand beneficiary access to home and community-based services (HCBS), states are using Section 1115 waivers to streamline program administration, improve care coordination, and expand beneficiary access to home and community-based services (HCBS). These states need waiver authority to require seniors and people with disabilities to enroll in managed care. Most Section 1115 MLTSS waivers include provisions designed to expand HCBS financial eligibility. Over half of states with Section 1115 MLTSS waivers expand HCBS eligibility to people with functional needs who are “at risk” of institutionalization.
Behavioral Health. Twelve states are using Section 1115 waivers to provide enhanced behavioral health services (mental health and/or substance use disorder services) to targeted populations or to integrate the delivery of physical and behavioral health services. This includes states responding to CMS guidance issued in 2015, which describes a new Section 1115 waiver opportunity that supports states’ ability to provide more effective care to Medicaid beneficiaries with a substance use disorder (SUD), including the provision of treatment services not otherwise covered under Medicaid. For example, states may receive federal matching funds for costs (otherwise not matchable) to provide coverage for services provided to individuals residing in institutions for mental disease (IMDs) for short-term acute SUD treatment.
Other Targeted Waivers. Section 1115 waivers have also historically helped states quickly provide Medicaid support during emergency situations. Currently, Michigan is operating a Section 1115 waiver to expand eligibility and provide additional services targeted to pregnant women and children affected by the Flint water supply crisis. Fourteen other states also operate narrow Section 1115 waivers that affect targeted populations (e.g., persons with HIV/AIDS, seniors and people with disabilities, uninsured nonelderly adults in non-expansion states). These targeted waivers may provide limited benefit coverage and/or include cost-sharing.
What to Watch in Waivers Going Forward?
Without changes in legislation, the new administration can make changes to Medicaid by reinterpreting current law through new regulations or sub-regulatory guidance and through approval (or denial) of Section 1115 Medicaid demonstration waivers. The role of waivers is not clear as Congress moves to repeal the ACA and also debates broader changes to Medicaid financing; however, legislative changes are likely to take time to enact and implement, while state specific waivers could be approved and implemented more quickly. Key questions about what types of waivers might be considered include:
- Questions about ACA Expansion Waivers: Will the new administration approve waivers that have been approved in other states in advance of completed waiver evaluations? Will waiver provisions, not approved to date, be approved that limit coverage or access, use ACA Medicaid funds for a partial coverage expansion, impose a work requirement as condition of eligibility, impose a lock-out for failure to pay monthly payments, or set a time limit for coverage?
- Broader Waiver Questions: Will requirements for transparency, public input and budget neutrality be maintained? What other types of waivers will the HHS Secretary deem to “assist in furthering the objectives of the [Medicaid] program”? Will the new administration identify and invite state waiver applications for certain types of waivers to further their policy priorities? Will CMS authorize joint Section 1115/Section 1332 waivers allowing Medicaid funds to subsidize Marketplace initiatives?
Looking ahead, more states may move forward with Medicaid demonstration waiver requests. Kentucky has a waiver pending at CMS to make changes to its traditional ACA Medicaid expansion, Indiana has submitted a proposal to extend their current HIP 2.0 Medicaid expansion waiver with some changes, and Arizona has a waiver pending that would impose a work requirement and a lifetime limit on Medicaid benefits for “able-bodied” adults. Beyond ACA expansion waivers, waivers in Texas and Florida will be up for renewal. Action on these and other waivers could provide insights as to what might be approved by the current administration.Appendices