Medicaid covers social needs through two authorities that work differently and have different stability. This lesson distinguishes them.
Medicaid covers health-related social needs through two distinct authorities. They are easy to confuse and important to separate, because they work differently and, right now, have very different stability.
Path 1: In-lieu-of services (managed care)
Under 42 CFR 438.3(e)(2), a state can let its managed care plans offer an in-lieu-of service (ILOS): a substitute for a covered state-plan service that the state determines is a medically appropriate and cost-effective alternative. An ILOS can substitute immediately, or be expected to reduce the future need for the covered service. This is what lets a plan pay for medically tailored meals or a housing-transition service in place of more expensive covered care.
The 2024 managed care rule (Module 2) specified ILOS scope for HRSN and added guardrails: spending is capped and subject to heightened documentation once it exceeds 1.5 percent of capitation, and it cannot substitute for the state’s underlying obligations.
Path 2: Section 1115 demonstrations
The second route is the expenditure authority from Module 4: a state can cover HRSN as demonstration services, as many did under the 2023 CMS framework (time-limited housing and nutrition supports). But recall the key update: CMS rescinded that framework in March 2025 and now reviews such requests case by case.
| In-lieu-of services | Section 1115 HRSN | |
|---|---|---|
| Basis | Standing regulation (42 CFR 438.3) | Negotiated demonstration |
| Vehicle | Managed care contract | Waiver |
| Current stability | Available as a regulatory option | No standing framework since March 2025 |
Worth remembering: the ILOS path is grounded in regulation and remains available; the 1115 framework path was federal guidance and was withdrawn. When you read that “Medicaid covers housing,” ask which authority, because one is durable and the other is a moving target.
What the evidence says
Keep the intro course’s honesty here: food and housing interventions show promising results in some studies, transportation and coordination results are mixed, and returns depend on targeting the people for whom the social barrier is the binding constraint. Coverage authority is necessary, but it does not by itself guarantee impact.
Key takeaways
- ILOS (42 CFR 438.3) lets managed care plans substitute medically appropriate, cost-effective services like housing or nutrition support; it is a standing regulatory option with cost guardrails.
- Section 1115 can also cover HRSN, but the 2023 framework was rescinded in March 2025, leaving case-by-case review.
- Coverage authority enables social-needs work but does not guarantee it improves outcomes.
Sources
Check your understanding
For a managed care plan to offer an in-lieu-of service, the state must determine it is:
In-lieu-of services must be medically appropriate and cost-effective substitutes for covered services, which is the test that lets a plan offer housing or nutrition support in place of more expensive covered care.