Medicaid and the State Children’s Health Insurance Program (SCHIP) are jointly funded by the federal government and states. States administer their Medicaid and SCHIP programs subject to requirements and options established by federal law. Nationwide, about two thirds of all Medicaid spending is at state option.
Waivers allow states to use federal Medicaid or SCHIP dollars in ways that do not conform to existing federal standards and options. The broadest source of federal waiver authority is section 1115 of the Social Security Act, which allows the Secretary of the U.S. Department of Health and Human Services (HHS) to approve research and demonstration projects that "further the objectives" of the program. Under Section 1115 waivers, states can make broad changes in their Medicaid programs, such as changes in eligibility, benefits, or cost sharing for a group of people that otherwise would not be allowed under federal law. Medicaid section 1115 waivers are not new, but recently HHS has been promoting them through two waiver initiatives--the Health Insurance Flexibility and Accountability (HIFA) initiative and the Pharmacy Plus initiative. HIFA provides states increased flexibility in financing their waivers, including allowing states to reduce coverage for people already eligible for Medicaid to offset the cost of expansions to new groups of people. Under Pharmacy Plus waivers, states can use federal matching funds for the cost of operating prescription drug-only programs for seniors who would not otherwise be eligible for Medicaid. States, generally, must accept a global cap on total federal Medicaid funding as part of the Pharmacy Plus waiver.
Additionally, states can use 1915(c) waivers to provide home and community-based services to individuals who are at risk of institutionalization in a hospital, nursing home, or Intermediate Care Facility for Individuals with Mental Retardation (ICF/MR). Under these waivers, states can provide services not otherwise covered by Medicaid; target specific geographic areas, populations, or conditions; and cap enrollment.
