Section 1115 Medicaid Demonstration Waivers: A Look at 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 federal program rules. Waivers can provide states considerable flexibility in how they operate their programs, beyond what is available under current law, and can have a significant impact on program financing. While there is great diversity in how states have used waivers over time, waivers generally reflect priorities identified by states and the Centers for Medicare and Medicaid Services (CMS) (see Appendix A). As of September 2017, there are 33 states with 41 approved waivers and 18 states with 21 pending waivers (see Appendix B and C for detailed tables). This brief answers basic questions about Section 1115 waiver authority and discusses the current landscape of approved and pending demonstration waivers (Figure 1). Key recent developments related to waivers include:

• On March 14, 2017, the CMS sent a letter to state governors that signaled a willingness to use Section 1115 authority to “support innovative approaches to increase employment and community engagement” and “align Medicaid and private insurance policies for non-disabled adults.” Several states with ACA expansion waivers already have approval to implement provisions that aim to align Medicaid and Marketplace coverage. The CMS letter indicates a willingness to expand these policies to traditional Medicaid adults as well as a willingness to approve landmark program changes, like work requirements.
• A number of states have waivers pending at CMS that include provisions not previously approved including work requirements, drug screening and testing, eligibility time limits, and premiums with disenrollment for non-payment for traditional Medicaid populations. Some of requests are part of expansion waivers, while others would apply to traditional populations.
• Stakeholders are waiting to see how CMS will respond to pending waiver requests, especially those that have not been approved in the past and could lead to decreased program enrollment.

What are Section 1115 Medicaid waivers and how do they Work?

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 a “experimental, pilot, or demonstration project” that “is likely to assist in promoting the objectives of the program.” States can obtain “comprehensive” Section 1115 waivers that make broad changes in Medicaid eligibility, benefits and cost-sharing, and provider payments across their programs. There also are narrower Section 1115 waivers that focus on specific services or populations. While the Secretary’s waiver authority is very broad, 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. 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 enforces budget neutrality by establishing a cap on federal funds under the waiver, putting the state at risk for any costs beyond the cap.

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. The ACA also implemented new evaluation requirements for these waivers, including that states must have a publicly available, approved evaluation strategy. States also must submit an annual report to HHS that describes the changes occurring under the waiver and their impact on access, quality, and outcomes.

What is the Current Landscape of Approved Section 1115 Medicaid waivers?

States have used waivers for many purposes, including to expand coverage, change delivery systems, alter benefits and cost-sharing, modify provider payments, and quickly extend coverage during an emergency. Increasingly, states are using Section 1115 waivers to combine programs (e.g., including authorities otherwise available under Section 1915 (b) managed care waivers and/or Section 1915 (c) home and community based services waivers, along with Section 1115 authority for other eligibility, benefits, delivery system and payment reforms) under one single authority.

As of September 2017, 33 states had 41 approved Section 1115 waivers (not including family planning or CHIP-only waivers). Some states have multiple waivers, and many waivers are comprehensive and may fall into a few different areas. Major areas of focus of current approved state Section 1115 waivers include delivery system reform initiatives, especially efforts that tie provider incentive payments to performance goals; integrating physical and behavioral health or providing enhanced behavioral health services to targeted populations; authorizing the delivery of Medicaid long-term services and supports (LTSS) through capitated managed care; responding to public health emergencies and providing coverage for other targeted groups; and the implementation of alternative ACA Medicaid expansion models (Figure 2). These themes are discussed in more detail below (also see Appendix B).

Delivery System Reform Waivers. Sixteen states have approved waivers that focus on delivery system reform initiatives, especially efforts that tie provider incentive payments to performance goals. These states are using Section 1115 expenditure authority to authorize spending of federal dollars on delivery system reforms that otherwise would not be available under current law. Ten of these states are using Section 1115 waivers to implement Delivery System Reform Incentive Payment (DSRIP) initiatives. DSRIP initiatives, which emerged under the Obama Administration, provide states with significant federal funding to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries. DSRIP initiatives link funding for eligible providers to process and performance metrics.

A few other states have approved Section 1115 waivers for federal investment in delivery system reform initiatives other than DSRIP including Arizona’s initiative to integrate physical and behavioral health care, Oregon’s Coordinated Care Organizations (CCOs), and Vermont’s all-payer ACO model. Florida and Tennessee as well as several states with other delivery system reform initiatives (Arizona, California, Kansas, Massachusetts, New Mexico, and Texas) also 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. Uncompensated Care Pool funding was being phased down according to post-ACA guidelines established by the Obama Administration, including acknowledging funding for direct coverage available under the ACA. However, the Trump Administration recently approved Florida’s Section 1115 waiver extension request, 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. Although states continue to show interest in pursuing delivery system reform through Section 1115 waiver authority, the future of DSRIP and low income pool initiatives remains unclear. States will be watching how the new Administration responds to Texas’ pending Section 1115 waiver extension application, which includes a request to continue its DSRIP initiative and to increase funding in its uncompensated care pool.

Behavioral Health. Twelve states are using Section 1115 waivers to provide enhanced behavioral health services (mental health and/or substance use disorder services) to targeted populations or to integrate the delivery of physical and behavioral health services. This includes states responding to CMS guidance issued in 2015, which describes a new Section 1115 waiver opportunity that supports states’ ability to provide more effective care to Medicaid beneficiaries with a substance use disorder (SUD), including the provision of treatment services not otherwise covered under Medicaid. For example, states may receive federal matching funds for costs (otherwise not matchable) to provide coverage for services provided to nonelderly adults residing in institutions for mental disease (IMDs) for short-term acute SUD treatment.

MLTSS. Twelve states are using Section 1115 waivers to authorize the delivery of Medicaid long- term services and supports (LTSS) through capitated managed care. While various Medicaid state plan authorities enable states to expand beneficiary access to home and community-based services (HCBS), states are using Section 1115 waivers in efforts to streamline program administration, improve care coordination, and expand beneficiary access to home and community-based services (HCBS). These states need waiver authority to require seniors and people with disabilities to enroll in managed care. Most Section 1115 MLTSS waivers include provisions designed to expand HCBS financial eligibility. Over half of states with Section 1115 MLTSS waivers expand HCBS eligibility to people with functional needs who are “at risk” of institutionalization.

Other Targeted Waivers. Section 1115 waivers have also historically helped states quickly provide Medicaid support during emergency situations. Currently, Michigan is operating a Section 1115 waiver to expand eligibility and provide additional services targeted to pregnant women and children affected by the Flint water supply crisis. Fifteen other states also operate narrow Section 1115 waivers that affect targeted populations (e.g., persons with HIV/AIDS, seniors and people with disabilities, uninsured nonelderly adults in non-expansion states). These targeted waivers may provide limited benefit coverage and/or include cost-sharing.

ACA Expansion Waivers. A few states have sought Section 1115 waivers to implement the ACA’s Medicaid expansion, in part because they could not otherwise secure political support to expand coverage. As of September 2017, seven states (Arizona, Arkansas, Iowa, Indiana, Michigan, Montana, and New Hampshire) have approved waivers to implement the ACA Medicaid expansion in ways that extend beyond the flexibility provided by the law. While the waivers are each unique, they include some common provisions including: implementing the Medicaid expansion through a premium assistance model; charging premiums beyond what is authorized in federal law; eliminating non-emergency medical transportation, an otherwise required benefit; and using healthy behavior incentives to reduce premiums and/or co-payments. Indiana’s waiver included provisions that had not been approved in other states including allowing the state to waive retroactive eligibility (later approved in New Hampshire and Arkansas); making coverage effective on the date of the first premium payment instead of the date of application; and barring certain expansion adults from re-enrolling in coverage for six months if they are dis-enrolled for unpaid premiums (a lock-out of up to three months for certain expansion adults was later approved in Montana). Table 1 illustrates eligibility and enrollment as well as benefit, co-payment, and healthy behavior incentive provisions approved as part of ACA expansion waivers to date.

Eligibility and Enrollment
Premium Assistance	QHP & ESI		ESI	ESI	QHP		QHP
Premiums / Monthly Contributions	X	X	X	X	X	X
Reasonable Promptness				X
Waive Retroactive Eligibility	X ii			X			X
12-Month Continuous Eligibility						X
Benefit Restrictions, Copays, and Healthy Behaviors
Waive Required Benefits (NEMT)			X	X
Co-payments Above Statutory Limits				Xiii
Healthy Behavior Incentives		X	X	X	X
Notes: “QHP” refers to Qualified Health Plans. “ESI” refers to employer-sponsored health insurance. i-AR waiver provides authority for state to not offer NEMT for individuals covered through ESI who do not demonstrate need for services. ii-AR waiver includes conditional waiver of retroactive coverage, contingent upon state coming into compliance with statutory and regulatory requirements related to eligibility determinations. iii-Cost-sharing waiver approved in IN under Section 1916(f), not Section 1115.

What is the Current Landscape of Pending Section 1115 Medicaid waivers?

As of September 2017, 18 states had 21 pending Section 1115 waiver applications, including new applications, renewals, and amendments to existing waivers (see Appendix C). Pending waiver requests continue in established areas including delivery system reform, behavioral health, MLTSS, and waivers that affect targeted populations (Figure 3). Additionally, under the new Administration, some states are seeking waiver authority to impose welfare-like restrictions and to make other changes to eligibility, enrollment, and benefits that have not been approved by CMS to date, or have only been approved as part of Medicaid expansion waivers. New/emerging themes in pending waiver are discussed below.

Behavioral Health. As of September 2017, 11 states (AZ, FL, IL, IN, MI, MO, NC, UT, VA, WI, and WV) had pending waiver requests that include behavioral health initiatives. Seven of these states (AZ, IL, IN, MI, WI, WV, and UT) seek to waive the IMD payment exclusion to receive federal Medicaid funds for inpatient behavioral health services for nonelderly adults. Five states (FL, IL, MI, UT, and VA) seek waiver authority to fund other behavioral health or supportive services for people with behavioral health needs, such as supportive housing, supported employment, peer supports, and/or community-based SUD treatment services. Three states (MO, VA, and UT) seek authority to add or expand coverage to targeted groups of adults with behavioral health needs who are otherwise uninsured. Three states (IL, MI, and NC) request waiver authority for delivery system reform initiatives, such as physical/behavioral health integration, value-based purchasing, and improved coordination between traditional health plans and those providing specialty behavioral health services.

Work Requirements. As of September 2017, six states (AR, IN, KY, ME, UT, and WI) have pending waiver requests that would require work as a condition of eligibility, for expansion adults and/or traditional populations (Table 2). Medicaid work requirement proposals generally would require beneficiaries to verify their participation in approved activities, such as employment, job search, or job training programs, for a certain number of hours per week to receive health coverage. The proposals typically would exempt certain populations, but little detail is available to date about who would qualify for these exemptions, how the policies would be administered, and who would provide work support services. To date, CMS has not approved state waiver requests to require that Medicaid beneficiaries work as a condition of eligibility, on the basis that such a provision would not further the program’s purposes of promoting health coverage and access.

Expansion Adults	X	X	X
Traditional Adults		X (low income parents, Transitional Medical Assistance)	X (low income parents)	X (parents up to 105% FPL, former foster care youth, Transitional Medical Assistance, medically needy, family planning)	X (parents from 60-100% FPL and childless adults 0-100% FPL)	X (adults without dependent children from 0-100% FPL)

Eligibility and Enrollment Restrictions. To date, CMS has approved certain eligibility and enrollment related waiver provisions as part of ACA Medicaid expansion waivers including 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 disenrolled for unpaid premiums (Table 1). Under the new Administration, states are seeking approval of some of the same types of provisions included in Medicaid expansion waivers but are seeking to apply these provisions to traditional Medicaid populations. States are also seeking approval of more restrictive eligibility and enrollment provisions than have been approved by CMS to date, which could apply to expansion adults and traditional Medicaid populations. Many of these proposed provisions would lead to reduced Medicaid enrollment according to state estimates. Eligibility and enrollment provisions included in pending waiver requests that have not been approved by CMS to date are summarized in Table 3 below.

Limit expansion eligibility to 100% FPL with enhanced match	X
Eliminate Hospital Presumptive Eligibility				X		X
Asset Test for Poverty-Related Eligibility Pathways				X
Waive MAGI Requirements					X
Drug Screening and Testing							X
Premiums with Disenrollment for Non-Payment for Traditional Medicaid Populations			X	X			X
Tobacco Surcharge		X
Lock-out for Failure to Timely Renew Eligibility		X	X
Time Limit on Coverage				X			X
Notes: Texas has multiple pending waivers; pending waiver in table refers to Texas’ “Healthy Women” family planning waiver. Not shown in table: Iowa has pending waiver request to eliminate retroactive eligibility for all populations.

Benefit Restrictions, Copays, and Healthy Behaviors. CMS has approved waivers that eliminate non-emergency medical transportation, implement healthy behavior incentives (tied to premium or cost sharing reductions), and charge copays in excess of the federal maximum for non-emergent use of the emergency room primarily in Medicaid expansion waivers. States are continuing to seek authority to implement similar provisions, with some states seeking to apply these provisions to traditional (non-expansion) populations. Available data about healthy behavior programs in Iowa, Michigan, and Indiana suggest that complex provisions require extensive administrative resources and beneficiary education to implement. Texas also has a pending family planning waiver that includes a request to waive beneficiary freedom of choice for family planning services, a provision not approved by CMS to date.

What to Watch in Waivers Going Forward?

This brief covers approved and pending waivers submitted to CMS to date. Other states are actively preparing waivers or amendments for submission. Arizona completed a state public comment period for a waiver amendment that proposes changes to coverage for all “able-bodied” Medicaid adults, not only those who newly gained coverage under the ACA’s expansion, including a work requirement as a condition of eligibility, a 5-year lifetime limit on benefits, monthly income and work verifications and eligibility renewals, and a one-year lock-out for those who knowingly fail to report a change in income or make a false statement about work compliance. Massachusetts is planning to submit a waiver that requests permission to adopt a closed prescription drug formulary, among other changes.

Under the new Administration, states, beneficiaries, providers, and other stakeholders are waiting to see whether requirements for transparency, public input, and budget neutrality will be maintained; how CMS will respond to pending state waiver requests, especially waiver requests that contain provisions not previously approved under Medicaid; whether newly approved waivers will be challenged in the court system as inconsistent with Medicaid program purposes or otherwise outside the Secretary’s authority; and how states will design behavioral health waivers including those seeking to provide a full continuum of care for SUD treatment services. Key waivers to watch include Kentucky, Indiana, Arkansas, Maine, Wisconsin, Utah, and Texas where the new Administration will consider state requests for work requirements, eligibility and enrollment restrictions, and benefit restrictions which would apply to populations beyond Medicaid expansion adults.

Appendices

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