Medicaid Waivers in the States | Seven FAQs

States pursue program waivers and 1115 demonstration waivers to change their Medicaid program and achieve greater flexibility than is otherwise allowed under Medicaid rules. Put simply, the federal government grants waivers that allow states to innovate under Medicaid in ways they are not otherwise permitted to do under existing Medicaid rules. Federal law permits the secretary of Health and Human Services to waive certain federal requirements as needed by states to conduct demonstration or pilot projects to improve their Medicaid program. Under a Medicaid waiver, states can receive permission to forego certain federal requirements and test new or innovative reforms that are not currently permitted under law. State Medicaid agencies operate approved Medicaid demonstration projects with oversight by the federal Centers for Medicare & Medicaid Services (CMS). States are required to meet budget criteria and submit reports and evaluations to CMS to demonstrate that the waiver’s requirements are being met.

A formal waiver is not always needed to implement desired changes, and states can make a variety of program changes without one. States have significant flexibility under the Medicaid law to design programs that meet their specific needs and priorities without needing to obtain a waiver. In NCSL’s 2016 webinar on Medicaid waivers, presenter Cindy Mann noted several of the following state actions that can be taken without a waiver.

Source: “Health Care Waivers 101,” presentation by Cindy Mann at NCSL’s Medicaid 101 webinar, July 2016.

There are several types of waivers available to states and each provides flexibility to design and operate Medicaid programs outside of the statutory requirements.

Section 1115 Medicaid demonstration waivers permit states to test innovative ways to design and improve their Medicaid and CHIP programs, beyond what is required under current law. Section 1115 of the Social Security Act authorizes the secretary of the Department of Health and Human Services to approve experimental, pilot or demonstration projects that test and evaluate program changes in their Medicaid and Children’s Health Insurance Programs (CHIP) to improve care, increase efficiency and reduce costs without increasing federal Medicaid expenditures.

Under the waivers, states have considerable flexibility to design and improve their programs:

Medicaid is now the largest payer of long-term care services, with federal and state combined expenditures at approximately $113 billion annually, according to a 2016 CMS report. The report projects that enrollment growth and other factors will increase Medicaid spending on fee-for-service long-term care, increasing from $113 billion in 2016 to $154 billion in 2025. States are seeking innovative ways to improve the quality of care and reduce costs, including expanding home- and community-based services.

States may submit home- and community-based services (HCBS) waivers to meet the needs of people who want to get long-term care services and supports in their home or community instead of an institutional setting or long-term care facility.  The waiver allows states to meet the needs of a particular target group by age or population, such as individuals with autism, cerebral palsy or HIV/AIDs. To qualify, a person must demonstrate need for a level of care that would meet the state’s requirements for receiving services in an institutional setting. Several 1915 waiver options are summarized below.

States can offer a wide range of standard medical and nonmedical services under an HCBS Waiver program. Standard services include case management, homemaker, home health aide, personal care, adult day health services, day and residential habilitation and respite care. States may propose “other services that may assist in diverting and/or transitioning individuals from institutional settings into their homes and community.”

According to CMS, state HCBS waiver programs are required to show that providing waiver services will not exceed the costs of providing services in an institution, that there are adequate provider standards to meet the population’s needs, and that services follow a person-centered care plan. In 2016, all 50 states and the District of Columbia had at least one program that provided assistance to people living outside of nursing homes, and most states offer more than one program. Currently, there are more than 300 active HCBS Waiver programs nationwide. CMS provides additional information and specific examples of the 1915 waivers by state.

Key Facts: 1332 Waivers

• Allows states to modify key ACA provisions related to private coverage within specific limits.
• State legislatures play a key role: They must pass authorizing legislation to implement section 1332 waiver-based reforms.
• Section 1332 allows states to implement approved waivers beginning as early as January 2017. Hawaii is the only state to receive approval as of April 2017, and others have pending applications. 

• See our webpage on the state legislatures’ role in the 1332 process.

Section 1332 of the Affordable Care Act allows states to waive key private insurance provisions provided they retain many of the law’s basic protections. While it is not a Medicaid waiver, states can coordinate 1332 and 1115 waivers to achieve better alignment across insurance programs related to premium and cost-sharing, purchasing, and enrollment and eligibility. States may seek multiple waivers from HHS at the same time, and may do so by requesting permission to change their Medicaid programs under an 1115 waiver and their marketplace coverage under a 1332 waiver.

Overview of 1332 Waivers. States may submit innovation waivers, also referred to as 1332 waivers, to “provide quality health care that is at least as comprehensive and affordable as would be provided absent the waiver, provides coverage to a comparable number of residents of the state as would be provided coverage absent a waiver, and does not increase the federal deficit,” according to the Centers for Medicare & Medicaid Services.

The waivers, available beginning January 2017, are approved for five-year periods and can be renewed. The U.S. Department of Health and Human Services and the U.S. Department of the Treasury review and approve waiver applications.

State Legislatures’ Role in the 1332 Process. The federal statute requires interested states to pass authorizing legislation as an early step to apply for and ultimately implement waiver-based reforms. As of April 2017, at least nine states had enacted laws that authorize state officials to consider or submit a 1332 waiver application, and another 18 have considered legislation (Figure 1). The content and proposed state changes vary widely, from minor fixes to substantial redirections. Some seek to restrict the use of these federal waivers. Several measures were defeated or deferred.

In December 2016, Hawaii became the first state to receive approval for its waiver application, and others—including Alaska, California, Massachusetts and Vermont—have pending applications. The approved waiver allows Hawaii to end operation of the Small Business Health Options Program (SHOP) and its requirements for the small business marketplace and instead align the ACA with the Hawaii Prepaid Health Care Act’s requirements for private employers.

Arkansas’ section 1115 expansion waiver, also known as the private option, authorizes the state to use Medicaid funds to purchase qualified health plan (QHP) coverage on the marketplace. While the Government Accountability Office challenged the program’s budget neutrality, the expansion has provided coverage to nearly 200,000 newly eligible adults through QHPs in the Arkansas marketplace. Under a consolidated 1115 and 1332 waiver, one could envision HHS permitting states to demonstrate budget neutrality across waivers. Arkansas Governor Asa Hutchinson recently alluded to a 1332 waiver as playing a role in future efforts. More information on Arkansas’  combined waiver approach can be found in this 2017 analysis by the Commonwealth Fund.

State legislators play an important role in setting policies and overseeing their state program’s design and delivery system. States can leverage their market power as large purchasers of health care services to create new payment models that may simultaneously contain costs and improve care. Indeed, states have adopted a wide range of innovative strategies to improve the value of their Medicaid programs, from aligning incentives and provider payments with their desired patient outcomes to adopting new delivery systems that coordinate and streamline services for individuals who are eligible for both Medicaid and Medicare.

Policymakers can ask several key questions to determine whether there are unmet needs or challenges that could be addressed through changes to the state’s Medicaid or CHIP program. During NCSL’s 2016 Medicaid webinar series, presenter Cindy Mann offered the following potential questions that can help inform a state’s next steps related to pursuing additional flexibility in their programs:

According to NCSL’s health innovations database,  states enacted at least 120 Medicaid laws in 2016 aimed at reducing costs and improving outcomes through a wide range of delivery and payment reforms, eligibility expansions and Medicaid waivers (Figure 1). For more detail on state actions, visit NCSL’s health innovations webpage.  

Additional information on Medicaid waivers is available through NCSL and other agencies and organizations’ web resources. Select resources are summarized below.