Waiver Worries? States Should Stay the Course on Medicaid 1115 Demonstration Implementation

Editor:  Amanda Eisenberg
Author: Patti Boozang

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tl;dr

• Section 1115 waivers provide state Medicaid programs with essential flexibility to experiment with innovative approaches to address unique coverage, benefit and access needs of their populations.

• The Trump administration has already signaled one demonstration policy direction which departs from that of the last administration in the areas of social drivers of health and health-related social needs (SDOH/HRSN).

• More change may come. Meanwhile, states and their demonstration implementation partners should stay the course on implementing approved waivers.

The 80 Million Impact

Much of the focus in these past weeks among Medicaid policymakers has been on Congress and the unfolding budget reconciliation process, and rightly so. The next step in the process — an agreement between the Senate and House on a budget resolution that offers committee instructions that will guide reconciliation efforts this spring (and perhaps summer) — is picking up steam. We understand that the goal is to have the two-chamber resolution on the floor during the next three weeks. As we’ve discussed extensively in recent issues of The 80 Million, there is much at stake for Medicaid. Proposals being considered would, if passed, make unprecedented changes to the structure and level of Medicaid program funding, undercutting coverage, benefits and access for the people who rely on the program for health care.

But today, we reflect on other potential changes that may be brewing for Medicaid, specifically for Section 1115 Medicaid demonstration waivers.

Background on Section 1115 Demonstrations

Section 1115 of the Social Security Act allows states to experiment with innovative approaches for their Medicaid programs to address population-specific needs. Nearly all states have 1115 waivers and some have several: 64 approved 1115 demonstrations across 47 states aim to expand coverage, test new benefits, and invest in delivery system outcomes, efficiency and cost-effectiveness. Over half of all Medicaid spending in 2019 was under Section 1115 demonstrations, which must be “budget neutral” — meaning they can’t cost the federal government more than it would spend on the state Medicaid program without the waiver. The Department of Health and Human Services (HHS) secretary approves 1115 demonstrations at their discretion.

All of this is to say that 1115 demonstrations are a critical tool for state flexibility in Medicaid programs and are also a vehicle for the executive branch of government to advance Medicaid policy priorities and, conversely, halt advancement of disfavored policies of prior administrations. The most recent prior presidential administrations offer good case examples. The first Trump administration approved 1115 demonstrations for work reporting requirements and payment for institutional behavioral health services with companion requirements for states to invest in the community-based continuum of behavioral health services. The Trump 1 CMS also approved the nation's first SDOH/HRSN waiver in North Carolina.​ The Biden administration rescinded waiver approvals with work requirements but built on and expanded the prior administration’s SDOH/HSRN policy and expanded Medicaid coverage to include pre-release services for justice involved people, among other priorities.

Actions that CMS can take on 1115 waivers

There are three ways by which CMS has historically made changes to previously approved waiver policy that does not align with priorities of a new administration:

1. Grandfather policies. Decline to approve new waivers that allow the policy but allow states that already have the policy in place to keep it, including at waiver renewal (perhaps with some changes to the policy negotiated at renewal).

2. Sunset policies. Decline to approve new waivers and waiver renewals of the policy but allow those already in place to continue until they naturally expire.

3. Rescind policies. Rescind approved, active waivers with the disfavored policy (or components of such waivers) before the schedule expiration date.

CMS’ March 4 informational bulletin (CIB) rescinding the Biden era guidance on HRSN is the first official signal of the Trump administration’s waiver policy positions on a major area of current demonstration focus among states. Under the Biden administration, 18 states across the political spectrum received 1115 demonstration approvals (or renewed approval) to cover services that address SDOH/HRSN:

CMS indicates that the agency rescinded prior SDOH/HRSN guidance to “evaluate policy options consistent with the Medicaid and CHIP program requirements and objectives” and that CMS will consider state applications to cover HRSN on a case-by-case basis to determine consistency with federal Medicaid statute and regulations. While the CIB itself does not directly address prior state 1115 demonstration approvals under the rescinded guidance, the Medicaid.gov-issued bulletin releasing the CIB states: “Rescinding this guidance does not negate existing approvals.”

As my Manatt colleagues Melinda Dutton and Mandy Ferguson note in their recent 80 Million post on the durability of Medicaid SDOH/HRSN services, President Trump and HHS Secretary Robert F. Kennedy, Jr. prioritize reducing chronic illness as central to their Make America Healthy Again agenda, including access to healthy food and prevention — creating an opening for the new HHS leadership SDOH/HRSN waivers. Beyond SDOH/HRSN waiver policies, it remains to be seen what the Trump administration will prioritize or deprioritize as far as state demonstration flexibility.​

So, what should states with approved waivers do? Stay the course on demonstration implementation. States and their partners invest tremendous resources — human and financial — in waiver development and implementation to improve Medicaid’s impact on the most intractable and challenging health problems for their populations. Now is a good time to take stock of where the state is on waiver implementation and to engage in discussions with CMS and other federal and state policymakers about progress by:

• Reviewing implementation milestones and requirements under demonstration special terms and conditions (STCs) to ensure that the state and implementation partners are meeting all obligations of the waiver. Failure to comply with demonstration STCs is a basis on which CMS could reopen or rescind a demonstration authority and STC compliance is an area well within state control.

• Ensuring timely implementation of demonstration components. The courts generally frown upon efforts to rescind 1115 waivers, especially if a state has moved along in implementing and established what is known as a “reliance” interest (i.e., the state, its providers and other partners have already acted and invested based on the federal government’s approval of an 1115 waiver).

• Documenting and communicating with federal partners evidence that demonstrates the impact of the waiver, that it advances the objectives of the Medicaid program and, as necessary, identifies the negative impacts of ending the waiver authority.​

• Partnering with key messengers to educate state and federal policymakers about the unique circumstances that require the state’s unique demonstration flexibility.

​The Bottom Line

The flexibility offered by 1115 demonstrations has been a cornerstone of state innovation in Medicaid across federal administrations, allowing for tailored approaches that meet unique health care needs of the 80 million Medicaid enrollees across the nation. As is always true in a transition to a new administration, the landscape of Medicaid Section 1115 demonstration waivers is poised for change. As states and stakeholders navigate these shifts, it is crucial to be proactive in implementing their already-approved federal demonstrations. By ensuring compliance, moving full steam ahead on implementation, documenting demonstration impacts, and engaging with policymakers, states can continue their progress and communicate the value of their demonstration innovations.

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