What a Section 1115 Waiver Is

Most of the flexibility in this course, managed care, directed payments, and the social-needs benefits coming in Module 5, ultimately traces to one provision: Section 1115 of the Social Security Act. It is the widest door in Medicaid law, and understanding it explains how states test almost everything new.

The authority

Section 1115 lets the Secretary of Health and Human Services approve “experimental, pilot, or demonstration projects” the Secretary finds “likely to assist in promoting the objectives of the Medicaid program.” Two powers make it exceptional:

• Waiver authority. The Secretary can waive most of the state-plan requirements in Section 1902, the rules that normally bind a state program.
• Expenditure authority. The Secretary can allow federal matching funds for costs “not otherwise matchable,” letting states cover services and populations Medicaid would not normally pay for.

Together these let a state run a version of Medicaid that departs substantially from the standard rules, as a time-limited demonstration.

The one big constraint: budget neutrality

The counterweight is budget neutrality: federal spending under the demonstration cannot exceed what it would have been without it. A state can rearrange and expand what Medicaid does, but not, in principle, make it cost the federal government more.

Worth remembering: budget neutrality is not defined in statute or regulation. It is CMS policy, and its methods have shifted with administrations. That ambiguity is why the same demonstration can be judged affordable under one administration and too costly under the next.

How approval works

A state applies, holds a public comment period, and negotiates terms with CMS; approvals are time-limited, commonly five years, and renewable. Because each demonstration is negotiated, 1115 waivers vary enormously from state to state, and they shift with federal priorities, a recurring theme in the next two lessons.

Key takeaways

• Section 1115 lets the Secretary waive most state-plan rules and fund otherwise-unmatchable services to test demonstrations that promote Medicaid’s objectives.
• Demonstrations must be budget-neutral to the federal government, a policy standard that is not defined in statute and shifts over time.
• Approvals are negotiated, time-limited, and highly variable, which makes 1115 policy move with each administration.

Sources

• MACPAC, Section 1115 Research and Demonstration Waivers (opens in a new tab)
• Medicaid.gov, About Section 1115 Demonstrations (opens in a new tab)