States seeking additional flexibility in design of their Medicaid programs may apply for formal waivers of some statutory requirements from the Secretary of the U.S. Department of Health and Human Services (HHS). For example, certain eligibility and benefit provisions of the Medicaid statute may be waived in order to explore new approaches to the delivery of and payment for acute care and long-term services and supports (LTSS). States can use waivers to offer a specialized benefit package to a subset of Medicaid beneficiaries, to restrict enrollees to a specific network of providers, or to extend coverage to groups beyond those defined in Medicaid law.

All states operate one or more Medicaid waivers, which are generally referred to by the section of  Social Security Act granting the waiver authority and are categorized either as program waivers or research and demonstration projects. Approval of states’ waiver applications is at the discretion of the Secretary. In some cases, waivers may be coordinated with efforts involving other programs, such as Medicare or health insurance exchanges.

For Section 1115 and 1915(c) waivers discussed below, estimated federal spending over the period for which the waiver is in effect cannot be greater than it would have been without the waiver, referred to as budget or cost neutrality. In the case of Section 1915(b) waivers, the statute requires that they be cost-effective and efficient.

Medicaid Program Waivers. Originally enacted by Congress in the Omnibus Budget Reconciliation Act of 1981, Medicaid program waivers offer states additional targeted flexibility to test new approaches to service delivery. Although state plan options that allow for similar approaches without a waiver have been added to the statute over the years, many states continue to make use of waivers, in part because of the additional flexibilities they provide.

Freedom of choice: Section 1915(b) waivers. The Medicaid statute generally guarantees beneficiaries freedom of choice of providers, but Section 1915(b) waivers permit states to implement service delivery models (e.g., those involving managed care plans) that restrict choice of providers other than in emergency circumstances. States can also use Section 1915(b) to waive statewideness requirements (e.g., to provide managed care in a limited geographic area) and comparability requirements (e.g., to provide enhanced benefits to managed care enrollees). Section 1915(b) waivers are generally approved for an initial two years with two-year renewal periods. For those serving individuals who are dually enrolled in Medicare and Medicaid, five-year approval and renewal periods are available.

Home and community-based services (HCBS): Section 1915(c) waivers.  Section 1915(c) waivers authorize states to provide HCBS as an alternative to institutional care in nursing homes, intermediate care facilities for individuals with intellectual disabilities, and hospitals. The statute identifies services that may be considered HCBS, including case management, homemaker/home health aide, personal care, adult day programs, habilitation, and respite care services. The Secretary may also approve other services needed to avoid institutionalization. Under HCBS waivers, states can provide targeted sets of services to specific populations including, for example, seniors, people with physical or developmental disabilities, and individuals with specific conditions such as HIV/AIDS or traumatic brain injuries. States are permitted to impose caps on waiver program enrollment and average costs per person to ensure that they do not exceed the waiver’s cost-neutrality limit. HCBS waivers are generally approved for three years (five years may be provided for those serving persons dually enrolled in Medicaid and Medicare) with five-year renewal periods.

Section 1115 Research and Demonstration Projects. Section 1115 of the Social Security Act gives broad authority to the Secretary to authorize “any experimental, pilot or demonstration project likely to assist in promoting the objectives” of the programs. Under Section 1115 research and demonstration authority, the Secretary may waive certain provisions of the Medicaid (and CHIP) statutes related to state program design.1 Such projects are generally broad in scope, operate statewide, and affect a large portion of the Medicaid population within a state. This authority has also been used, however, to focus on specific services or populations, such as family planning or people with HIV/AIDS.

To meet budget neutrality requirements, states identify savings—such as those from implementation of managed care or changes in benefits and cost sharing—in their proposed 1115 demonstrations that will offset the cost of any program expansion. Section 1115 demonstrations include a research or evaluation component and usually are approved for a five-year period, with a possible three-year renewal period after the first five years.

The ability to waive certain aspects of the Medicaid statute gives states flexibility to experiment with different approaches to program operation, service delivery, and payment. Although the specifics of each initiative vary, states have used Medicaid funds under Section 1115 authority to purchase premiums for exchange coverage, achieve savings through enrollment and eligibility restrictions or premium and cost sharing increases, expand the use of managed care, and restructure service delivery and payment systems.

1The Secretary does not have the authority to waive certain program elements such as the federal matching payment system for states. Waiver authority for CHIP is described in Sections 2107(e)(2)(A) and (f) of the Social Security Act.