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A Look at Section 1115 Medicaid Demonstration Waivers Under the ACA: A Focus on Childless Adults

Section 1115 Medicaid waivers provide states with an avenue to test new approaches in Medicaid that differ from federal program rules (See Text Box 1 and Appendix A). Waivers can provide states with significant flexibility in how they operate their programs and can have a considerable impact on program financing. As such, waivers have important implications for beneficiaries, providers, and states. Section 1115 waivers play a notable role in the Medicaid program and have been used for a variety of purposes, including expanding coverage to populations who are not otherwise eligible, changing benefits packages, imposing different levels of cost sharing, and restructuring delivery and payment systems.1,2 Historically, one key purpose has been to expand coverage to childless adults, a group that was excluded from Medicaid prior to the Affordable Care Act (ACA). As of September 2013, nearly half of states (24) have a Medicaid Section 1115 waiver in place that expands coverage to childless adults. Many of these waivers have been in place for many years, while a number of states obtained these waivers more recently to get an early start on the ACA’s Medicaid expansion. This brief provides an overview of Section 1115 waiver authority, describes major provisions of waivers that extend coverage to childless adults, and identifies key issues and implications of these waivers looking forward.

Text Box 1: Key Elements of a Section 1115 Waiver

Section 1115 waiver authority is provided for “experimental, pilot, or demonstration projects…to assist in promoting the objectives of” the Medicaid program.

Section 1115 authorizes the HHS Secretary to: Waive state compliance with certain federal Medicaid requirements; and

Provide federal matching funds for costs that would not otherwise be matched under Medicaid.

Section 1115 waivers are required to be budget neutral for the federal government.Under long-standing federal policy (not statute) federal spending under a state’s waiver must not be more than projected federal spending would have been without the waiver.

Budget neutrality is established using a cap on federal matching funds over the life of the waiver.

Waiver approval involves negotiations between a state and HHS and consideration of public comments. The approval process officially begins when a state submits a waiver application to CMS, which is subject to state and federal public notice and comment requirements.

If a waiver is approved, CMS issues an award letter to the state specifying the sections of the Medicaid Act that are being waived or modified and the types of expenditures allowed as well as the “terms and conditions” of approval with which the state must comply.

Waivers are typically approved for a 5 year period and can be extended, typically for 3 years.

Executive Summary Issue Brief