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Section 1115 research and demonstration waivers

Section 1115 is unique among waiver authorities – it combines extensive waiver authority with a broadly defined purpose for which waivers may be granted. Under Section 1115, the HHS Secretary can waive almost any Medicaid state plan requirement under §1902 (with the exception of citizenship and requirements of another agency as in the case of ERISA) to the extent necessary to carry out a demonstration or experimental project furthering the goals of the program. The Secretary can also permit federal financial participation for costs not otherwise matchable, allowing states to cover services and populations not included in the Medicaid state plan. For example, states have expanded opioid use disorder and substance use disorder (SUD) treatment benefits to provide residential SUD treatment in institutions for mental diseases (IMDs). Without a waiver, federal financial participation would not be available for these services.

Section 1115 predates the enactment of Medicaid as a vehicle for testing new approaches in a variety of federally funded programs and was used infrequently for policy experimentation for many years after enactment. But beginning in 1994, states sought Section 1115 waivers more frequently to alter eligibility, benefits, and delivery systems. For example, states used Section 1115 waivers to provide targeted benefits to individuals with HIV/AIDS, mandate enrollment in a specific capitated managed care plan, and increase cost sharing for certain populations. Today, Section 1115 is primarily used to negotiate flexible program parameters, rather than to create experiments focused on answering specific research questions.

Section 1115 waivers can be comprehensive, covering the entirety of a state’s Medicaid program, or narrow. For example, many states have used Section 1115 waivers to test policies for low-income adults not eligible for Medicaid on the basis of disability not normally allowed in Medicaid. These include additional conditions on eligibility such as work and community engagement requirements, premiums or copayment requirements that would not normally be permitted under Medicaid rules, limits on certain benefits, changes to the date that eligible individuals may enroll in Medicaid, and more.

Process and requirements

Demonstration waivers are by their nature open-ended and subject to a great deal of secretarial discretion, so states seeking Section 1115 waivers must engage in lengthy negotiation processes with CMS. The approval process is more flexible for Section 1115 waivers than state plan amendments or program waivers, but the negotiation process can take several months or years. This is partly because Section 1115 waivers can be comprehensive in nature, potentially encompassing the majority of a state’s Medicaid spending, whereas program waivers typically address a narrow, discrete aspect of a state’s program. For a comprehensive Section 1115 waiver, each program element must be separately understood, discussed, and negotiated.

Section 1115 waivers are required to be budget-neutral, meaning that federal spending under the waiver cannot exceed what it would have been in absence of the waiver. Although not defined by federal statue or regulations, this requirement has been in practice for many years. Over time, CMS has allowed states to calculate budget neutrality in multiple ways, although in 2018 provided states with additional information on agency policies regarding calculating budget neutrality (CMS 2018).

In addition, Section 1115 waivers can be used to allow a state to use savings generated by one initiative to pay for other changes, such as eligibility expansions, as long as the waiver as a whole is budget neutral. The calculations of budget neutrality can be controversial. Over the years, for example, the U.S. Government Accountability Office (GAO) has repeatedly questioned HHS approvals of some waivers, finding they “could increase the federal financial liability substantially” (GAO 2012). GAO has similarly found that HHS’s budget neutrality policy does not “include a process for assuring the reliability of the data used to set spending limits” (GAO 2013).

The Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended) responded to concerns surrounding the Section 1115 waiver approval process and instituted requirements for public process and transparency at both the state and federal level. A state must solicit significant public input by using multiple methods for public notification (like electronic mailing lists and notices in newspapers) and having a 30-day comment period before submitting the proposal to CMS. At the federal level, CMS must post all waiver application-related documents and correspondence on, among other requirements (CMS 2012).

Section 1115 waivers are initially approved for five years. They are renewed for up to three years at a time. In the ACA, Congress authorized the Secretary to approve Section 1115 waivers, as well as Section 1915(b) and (c) waivers, for five years if they enroll individuals dually eligible for Medicare and Medicaid (§1915(h)(2)). States may choose not to implement an approved waiver, or to implement it only partially.

In exchange for the flexibility provided under Section 1115 waivers, states must contract with independent evaluators to conduct periodic evaluations of the waiver’s outcomes and provide quarterly and annual reports on elements specified in the special terms and conditions of the waiver, such as information on waiver enrollment and spending, and the state’s implementation progress. In March 2019, CMS issued evaluation and monitoring guidance designed to strengthen expectations for states implementing certain types of demonstrations. The guidance includes a monitoring report template outlining the specific quantitative and coverage monitoring metrics states are expected to report, as well as evaluation design guidance that includes the key hypotheses, evaluation questions, measures, and methodologies that states are expected to include in their evaluation (CMS 2019).