Section 1115 Medicaid Demonstration Waivers: The Current Landscape of Approved and Pending Waivers

Section 1115 Medicaid demonstration waivers provide states an avenue to test new approaches in Medicaid that differ from what is required by federal statute. Waivers can provide states considerable flexibility in how they operate their programs, beyond what is available under current law. Waivers generally reflect priorities identified by states and the Centers for Medicare and Medicaid Services (CMS) and often reflect changing priorities from one administration to another. In November 2017, CMS, under the Trump administration, posted revised criteria for Section 1115 waivers that no longer include the goal of increasing coverage, as in prior administrations. In January 2018, CMS posted new guidance to allow state Section 1115 waiver proposals to condition Medicaid on meeting a work requirement and subsequently has approved the first waivers of that type in the history of the Medicaid program. Each administration has some discretion over which waivers to approve and encourage (see Appendix A) but that discretion is not unlimited. Litigation challenging waiver approvals in Kentucky and Arkansas is ongoing.1

Section 1115 waiver activity is expected to continue both through administrative actions and the courts. This brief provides basic information about the purpose and function of Section 1115 waivers, describes the current administration’s waiver priorities, and discusses trends in recent state waiver requests and waiver decisions. The most current activity is contained in our Medicaid waiver tracker,2 which shows approved and pending waivers.

What are Section 1115 Medicaid waivers?

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 an “experimental, pilot, or demonstration project” that “is likely to assist in promoting the objectives of the program.”3 States can obtain “comprehensive” Section 1115 waivers that make broad changes in Medicaid eligibility, benefits and cost-sharing, and provider payments across their programs.4,5 There also are narrower Section 1115 waivers that focus on specific services or populations. While the Secretary’s waiver authority is broad, it is not unlimited. 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.6 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 generally enforces budget neutrality by establishing a per member per month cap on federal funds under the waiver, putting the state at risk for increases in per member per month costs but not for increased costs due to enrollment growth.7

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.8,9 Although the final regulations involving public notice do not require a state-level public comment period for amendments to existing/ongoing demonstrations, CMS has historically applied these regulations to amendments. The ACA also implemented new evaluation requirements for these waivers, including that states must have a publicly available, approved evaluation strategy.10 States have traditionally been required to submit quarterly reports and must submit an annual report to HHS that describes the changes occurring under the waiver and their impact on access, quality, and outcomes.11,12

What waiver priorities have been identified by the Trump administration?

New Waiver Approval Criteria. Marking a new direction for Medicaid waivers, on November 7, 2017, CMS posted revised criteria for evaluating whether Section 1115 waiver applications further Medicaid program objectives (see Appendix B).13 The revised criteria no longer include expanding coverage among the stated objectives. Instead, the revised waiver criteria focus on positive health outcomes, efficiencies to ensure program sustainability, coordinated strategies to promote upward mobility and independence, incentives that promote responsible beneficiary decision-making, alignment with commercial health products, and innovative payment and delivery system reforms.

Work Requirements / Community Engagement. CMS also has issued new guidance identifying waiver policy priority areas and inviting applications from states. In January 2018, CMS issued new guidance for Section 1115 waiver proposals that impose work requirements (referred to as community engagement) in Medicaid as a condition of eligibility. This action reverses previous Democratic and Republican administrations, which had not approved such waiver requests on the basis that such provisions would not further the program’s purposes of promoting health coverage and access. The guidance asserts that such provisions would promote program objectives by helping states “in their efforts to improve Medicaid enrollee health and well-being through incentivizing work and community engagement.” In June 2018, a federal district court invalidated CMS’s initial approval of Kentucky’s waiver, which included a work requirement and other eligibility restrictions, finding that the Secretary failed to consider the waiver’s impact on Medicaid’s primary objective of providing affordable health coverage. Litigation challenging CMS’s re-approval of Kentucky’s waiver as well as CMS’s approval of a work requirement waiver in Arkansas is ongoing.

Opioids / Behavioral Health. CMS continues to use waivers to help states address the opioid epidemic as well as broader behavioral health initiatives. On November 1, 2017, CMS issued a state Medicaid director letter revising guidance issued by the Obama administration in July 2015. The revised guidance continues to allow states to use Section 1115 waivers to pay for substance use disorder (SUD) treatment services in “institutions for mental disease” (IMDs), and CMS continues to approve IMD SUD payment waivers.14 On November 13, 2018, CMS also issued new guidance inviting states to apply for Section 1115 waivers of the federal IMD payment exclusion for services for adults with a serious mental illness (SMI) or children with a serious emotional disturbance (SED). This guidance reverses prior CMS policy to not use Section 1115 waiver authority to allow Medicaid payments for non-elderly adults with a primary mental health diagnosis in IMDs15 and could have implications for states’ community integration obligations under the Americans with Disabilities Act and the Supreme Court’s Olmstead decision. As of early February 2019, CMS has not posted any state waiver applications under the new guidance. CMS notes that states may participate in the SUD demonstration opportunity and the SMI/SED demonstration at the same time.

Process and Evaluation. CMS released an Informational Bulletin in November 2017 indicating it will consider approving “routine, successful, non-complex” Section 1115 waiver extension requests for up to 10 years.16 On December 28, 2017, CMS approved the Mississippi Family Planning Medicaid Waiver extension for a 10-year period. Mississippi is the first state to receive a 10-year Section 1115 waiver extension under the new policy. In the same November 2017 guidance, CMS also signaled an interest in moving toward reducing the frequency of reporting required for states from quarterly to semi-annually or annually for certain demonstrations. CMS’s August 2017 renewal of Florida’s Managed Medical Assistance Section 1115 waiver allows the state to submit annual reports (and semi-annual reports at CMS’s request) instead of quarterly reports.

What waiver themes are emerging under the Trump administration?

WAIVER PROVISIONS APPROVED

Work Requirements and Other Eligibility and Enrollment Restrictions. Under the previous administration, CMS approved certain eligibility- and enrollment-related waiver provisions as part of ACA Medicaid expansion waivers (e.g., charging premiums beyond what is allowed under federal law, eliminating retroactive eligibility, making coverage effective on the date of the first premium payment (instead of the date of application), and locking out certain expansion adults who are dis-enrolled for unpaid premiums). Under the Trump administration, CMS has allowed states to apply these previously approved provisions as well as new eligibility and enrollment restrictions to both expansion and traditional Medicaid populations (e.g., low income parent/caretakers). (See waiver tracker for details.)

Waiver provisions approved by CMS for the first time under the Trump administration include:17

  • conditioning eligibility on meeting work requirements for ACA expansion and non-expansion populations;18
  • coverage lock-outs for failure to timely renew coverage or report changes affecting eligibility;
  • coverage loss and lock-outs for non-payment of premiums for non-expansion populations;
  • approval to charge premiums up to 5% of family income;
  • a premium surcharge for tobacco users;
  • eliminating retroactive coverage for nearly all Medicaid enrollees, including seniors and people with disabilities;19
  • fees for missed appointments;20 and
  • conditioning eligibility on the completion of a health risk assessment (HRA).

Several waivers approved at the end of 2018 or beginning of 2019, which include eligibility and enrollment restrictions, signal notable new waiver process and/or policy developments which are described in more detail below.

  • CMS approves restrictive waiver provisions not included in original state waiver requests. CMS is allowing Wisconsin to condition coverage on the completion of a health risk assessment (HRA) instead of allowing the state to condition coverage on completing a drug screening assessment and, if indicated, drug testing and treatment, as originally proposed.21,22 CMS gave Michigan the authority to condition eligibility on the completion of an HRA or healthy behavior activity (after 48 months of cumulative eligibility for expansion adults from 100-138% FPL) instead of the state’s original request to condition eligibility on meeting “escalating” healthy behavior requirements.
  • CMS decision on the treatment of AI/ANs in work requirement waiver. In response to state requests to exempt all American Indians and Alaska Natives (AI/AN) from work requirement waivers, CMS’s recent approval of Arizona’s work requirement waiver permits the state to exempt only those AI/AN enrollees who are members of federally recognized tribes. AI/ANs have a unique status under Medicaid statute, which include protections related to premiums and cost-sharing and mandatory enrollment in MCOs.23

Healthy Behavior Incentives and Benefit Restrictions. The current administration has also approved waivers that eliminate non-emergency medical transportation (NEMT) and implement healthy behavior incentives (tied to premium or cost-sharing reductions) – provisions approved by the previous administration as part of ACA expansion waivers.

Behavioral Health. State interest in Medicaid Section 1115 behavioral health waivers, including mental health and substance use disorders, remains high. Current and pending Section 1115 behavioral health waivers address four main areas:

  • using Medicaid funds for nonelderly adults receiving substance use disorder treatment services in “institutions for mental disease” (IMDs);24,25
  • expanding community-based behavioral health benefits;
  • expanding Medicaid eligibility to cover additional people with behavioral health needs; and
  • financing delivery system reforms, such as physical and behavioral health integration or alternative payment models.

Most behavioral health waiver activity is related to IMD substance use disorder (SUD) payment waivers. IMD SUD payment waivers approved under the Trump administration differ from those approved under the Obama administration in some ways. For example, waivers approved under the Obama guidance specified numeric day limits on IMD stays eligible for federal Medicaid funds. By contrast, most waivers approved under the Trump Administration do not have an explicit day limit.26 In addition, waivers approved under the 2015 guidance were contingent on states covering community-based services along with short-term institutional services that “supplement and coordinate with, but do not supplant, community-based services.” While the 2017 guidance notes that “states should indicate how inpatient and residential care will supplement and coordinate with community-based care in a robust continuum of care in the state” and directs states to “demonstrate how they are implementing evidence-based treatment guidelines,” most of those waivers generally do not detail the state’s coverage of SUD services across the care continuum as the earlier waivers do.

Social Determinants of Health. Medicaid funds typically cannot be used to pay directly for non-medical interventions that target the social determinants of health.27 However, in October 2018, CMS approved North Carolina’s Section 1115 waiver which provides financing for a new pilot program, called “Healthy Opportunity Pilots,” to cover evidence-based non-medical services that address specific social needs linked to health/health outcomes. The pilots will address housing instability, transportation insecurity, food insecurity, and interpersonal violence and toxic stress. CMS authorized $650 million in Medicaid funding for the pilot over five years, $100 million of which will be available for capacity building. The state will complete a summative pilot program evaluation as well as rapid cycle assessments to determine the effectiveness of pilot services.

Uncompensated Care Pools. Several states use Section 1115 authority to operate Uncompensated Care Pools (also called “Low Income Pools” in some states) to help defray the cost of uncompensated hospital care. For example, the Trump administration approved Florida’s Section 1115 waiver extension request in December 2017, which included an increase in funding for the state’s low income pool to $1.5 billion annually, reversing the trend toward reducing these funds.28,29,30 CMS also approved an increase in funding for Texas’ uncompensated care pool ($3.1 billion per year in the first two years, remaining years subject to new formula) as part of its December 2017 approval of Texas’ Healthcare Transformation and Quality Improvement Program waiver renewal.31 Both Florida and Texas have not adopted the ACA Medicaid expansion.

WAIVER PROVISIONS NOT APPROVED OR being PHASED OUT

The Trump administration has signaled some of its policy directions by not approving some state waiver proposals, including:

  • adopting a closed prescription drug formulary (MA);32
  • limiting ACA expansion eligibility to 100% FPL with the enhanced match (AR, MA); 33,34
  • lifetime limits on Medicaid benefits for eligible beneficiaries (KS);35
  • conditioning coverage on drug screening, and if indicated, testing and treatment (WI);
  • requiring stricter verification of U.S. citizenship and state residency than already required under federal law (NH);
  • imposing asset tests for poverty related pathways (ME, NH);
  • coverage lock-outs for individuals who misrepresent compliance with work requirements (MI); and
  • more frequent eligibility redeterminations (AZ).36

The current administration has reduced funding for renewals37 and not approved new Delivery System Reform Incentive Payment (DSRIP) initiatives, which provided states with significant federal funding to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries.38 Although DSRIP funding was never intended to be permanent and other states may be interested in developing new DSRIP initiatives, DSRIP does not appear to be a tool the Trump administration will use to advance delivery system reform.

What to Watch in Waivers Going Forward

Each administration has some discretion to approve waivers, although that discretion is ultimately limited by the Medicaid program purposes set out by Congress in federal law. The direction of recent waivers has and may continue to test the bounds of administrative flexibility through waivers, as evidenced by recent litigation challenging waiver approvals in Kentucky and Arkansas as outside the Secretary’s statutory authority and inconsistent with Medicaid program objectives. Going forward, areas to watch include CMS decisions on pending waivers, including waivers that would restrict beneficiary freedom of choice for family planning services (SC, TN, and TX), as well as new CMS guidance on evaluating community engagement demonstrations39 –a central component of Section 1115 Medicaid demonstration waivers. Arkansas began implementing its work requirement waiver in June 2018 and still lacks (as of early February 2019) a publicly available, approved evaluation plan. Media outlets have also reported CMS may be working to release new waiver guidance to states on Medicaid block grants/aggregate spending caps in exchange for unspecified additional state flexibility.40 However, no specific details regarding this anticipated guidance are available.

States can also change direction on waivers. In December 2018, CMS approved Maine’s waiver, including work requirements, premiums, and elimination of retroactive eligibility for traditional populations, which had been submitted by the LePage administration. When Governor Mills took office in January 2019, she declined to accept the waiver terms and conditions and indicated that Maine instead would make vocational training and workforce supports available to Medicaid enrollees.

As more waivers are submitted and approved, key questions include:

  • Applications: What are the stated goals and objectives? What does research or experience in other states show about provisions in the waiver? What populations are affected by the proposal? What are the anticipated effects on enrollment and coverage?
  • Approval & Implementation: What is the implementation plan and timeline? What are the administrative costs and challenges? What new systems will be necessary to implement the waiver? What is the process to receive public input on new waivers, amendments, and operational protocols?
  • Evaluation: What are the requirements for reporting and evaluation? How often do states need to submit data? Will waiver evaluations be timely and adequate? What data and reporting will be available prior to the completion of formal evaluations?
  • Litigation: How will litigation in Arkansas and Kentucky be decided? What will be the effect on other states? Will there be lawsuits challenging waiver approvals in additional states?
Appendices