We frequently read about state Medicaid programs receiving or being granted “waivers” by CMS, but what does that mean exactly? What is a “waiver”? What is the history of Medicaid waivers? How does the process work? We hope to answer these questions in this blog post.
The Legal Standard
A “waiver” refers to authority that the Secretary of Health and Human Services possesses under section 1115 of the Social Security Act:
“(a) In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of title … XIX … in a State …
“(1) The Secretary may waive compliance with any of the requirements of section … 1902 … to the extent and for the period he finds necessary to enable such State … to carry out such project; and
“(2)(A) costs of such project which would not otherwise be included as expenditures under section … 1903 … shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan approved under such title…”
Let’s break this down:
- If a state wants to operate an experimental or demonstration project in its Medicaid program; and
- The Secretary of HHS determines that the project is likely to assist in promoting the objectives of Medicaid; then
- The Secretary can waive compliance of any of the requirements of section 1902 of Medicaid; and
- She can treat the costs of the project that would not otherwise qualify for Medicaid matching funds as allowable expenditures, eligible for matching.
That gives a lot of power to the Secretary! Just by way of illustration: section 1902 sets forth all of the requirements that a State Medicaid plan must meet. As of the date of this blog post, there are currently 83 requirements that a Medicaid plan must comply with. The Secretary’s waiver authority allows her to waive any or all of those 83 requirements. So for example, a State Medicaid plan must provide that medical assistance has to be made available in the same “amount, duration or scope” to all Medicaid beneficiaries. A State can seek a waiver of that requirement and provide a more robust set of benefits to some beneficiaries than to others.
One other point in the law bears mention: in order to approve a waiver, the Secretary must determine that the waiver “is likely to assist in promoting the objectives” of the Medicaid program. That means that it’s entirely up to the Secretary to decide whether or not a waiver should be granted. Will a waiver that allows a State to deviate from the requirement that benefits be made available “with reasonable promptness” promote the objectives of Medicaid? There may be political and fiscal considerations that inform that judgment.
The courts have been incredibly deferential to the Secretary’s judgment. A good example is a case decided nearly 40 years ago, Crane v. Matthews, 417 F. Supp. 532 (N.D. Ga. 1976). In the case, the State of Georgia wanted to impose a minimal cost sharing requirement on Medicaid enrollees in the State. The Secretary of HHS approved a waiver request permitting the State to do so. A group of Medicaid beneficiaries challenged the approval of the waiver in court. The court concluded that “[g]iven the large degree of judgment vested in the Secretary with respect to the approval of section 1115 projects, it is not for the courts to deny the Secretary the right to approve a project just because the Court might in certain situations disagree with his judgment. That judgment is committed to the Secretary.” Emphasis added.
History of Medicaid Waivers
As the court case described above illustrates, Medicaid waivers have been around for a long time. They got a lot of attention in the early 1990s, when the Clinton Administration approved a waiver that received significant attention in public policy circles. Oregon made what, at the time, was a revolutionary decision: it would not pay for every medical procedure that Oregon Medicaid recipients had received in the past. Rather, it would rank all medical procedures paid for by the program based on those procedures’ costs and benefits. Oregon came up with a list of 688 medical procedures. But it said it would only pay for 568. The State then used the savings by not covering the excess procedures to expand coverage to Medicaid beneficiaries not previously eligible: primarily childless adults.
Oregon could not have possibly implemented its plan without the waiver. Some of the non-covered procedures were mandatory services that state plans were required to provide “with reasonable promptness” and in the same “amount, duration and scope.” By granting the waiver (which was renewed in successive years, most recently, last summer), HHS made a judgment that approving it would “assist in promoting the objectives of” Medicaid.
Many states have received waivers that were broader than Oregon’s and others have received far more targeted waivers. As we noted last week, HHS just approved a waiver for the state of Indiana that will enable the state to take up the Medicaid expansion authorized under the Affordable Care Act. CMS’ website shows a total of 44 currently active § 1115 waivers.
The waiver process typically begins with state officials having multiple meetings and discussions with CMS officials to discuss their plans that they are seeking under the pilot or demonstration project that requires a waiver. These discussions – which will sometimes take months or even over a year – will be at all levels of the state agency and CMS. Topics discussed will be the scope of the waiver; its costs; whether or not it is congruent with the agency’s long-term policy goals; and the legal requirements sought to be waived. With respect to costs, the federal Office of Management and Budget has long insisted that waivers be budget neutral, so much of the discussion will center around the cost of the program. Once the State and CMS settle on the scope of the waiver, the parties will sign a “Terms and Conditions” sheet that sets forth the terms of the agreement. At that point, it will be announced – often to much fanfare.