Seema Verma’s nomination to head the Centers for Medicare and Medicaid Services (CMS) places Section 1115 Medicaid demonstration waivers into increasing spotlight. This article explores some of the current applications of waiver authority and the role it may play in the new administration.

Waiver Authority

Under Section 1115 of the Social Security Act, the Secretary of Health and Human Services can approve experimental, pilot or demonstration projects that are otherwise not allowed under Medicaid program rules. Waivers allow states to implement pilot projects designed to promote Medicaid objectives by transforming delivery systems to provide more efficient and higher quality care, improving health outcomes for Medicaid beneficiaries and low-income populations, strengthening overall coverage, and increasing access to provider networks.

While states have relied on waiver authority for various purposes since the enactment of the provision in 1962, the Affordable Care Act (ACA) heightened its prominence as a number of states have implemented Medicaid expansion thereunder.

Section 1115 Waivers and Medicaid Expansion

Each waiver is unique and independently approved by CMS, yet there are some common features adopted among states that have elected to undertake the ACA’s Medicaid expansion on their own terms. Compare, for example, Arkansas and Indiana. Arkansas, whose waiver was recently granted a five-year extension, was granted a Section 1115 waiver for Medicaid expansion in September 2013. Indiana’s waiver was approved in January 2015. Both states emphasize personal responsibility through the imposition of beneficiary payment obligations; Arkansas is authorized to require monthly premiums for individuals above 100 percent of the federal poverty level, and Indiana’s waiver authorizes the state to require individuals above 100 percent of the federal poverty level to contribute a percentage of their income to a health savings account as a condition of eligibility. Both states introduce incentives for completing specified healthy behavior activities as well.

Notwithstanding the flexibility offered by Section 1115 waivers, the process has, historically, been one of compromise and CMS has not approved all requested modifications. Proposals from a number of states including Indiana have sought to condition eligibility on employment-related activities such as the maintenance of employment, participation in job-skills training, and/or search efforts. CMS has not, to date, approved any such initiatives. Rather, states are currently limited to administering voluntary job training and work search programs. CMS has also routinely denied the imposition of premiums for individuals with incomes under 100 percent of the federal poverty level as a condition of eligibility.

Waiver Authority and the New Administration

Amid ongoing discussions suggesting that the new administration may (1) repeal Medicaid expansion and (2) transition the Medicaid program to a block grant, is there an ongoing role for the Section 1115 waiver?

As we have noted in our series, Very Opaque to Slightly Transparent: Shedding Light on the Future of Healthcare, significant legislative action is unlikely to roll out immediately. Section 1115 waivers, over which CMS has significant discretion, present a more immediate catalyst for proponents of state autonomy over healthcare policy and other reforms. Aside from a general guiding principle—that the Secretary is empowered to waive requirements for features “likely to assist in promoting the objectives” of the Medicaid program—section 1115 of the Social Security Act does not contain criteria for the exercise of waiver authority. Notably, legal challenges claiming that the Secretary has exceeded its authority by granting waivers that do not “assist in promoting the objectives” of a relevant title of the Social Security Act have been largely unsuccessful.[1]

Moreover, Ms. Verma is no stranger to the waiver process. She and her consulting firm, SVC, Inc., developed waivers for Iowa, Ohio, and Kentucky, helped design Tennessee’s expansion proposal, and provided technical assistance to Michigan as the state implemented its waiver. Ms. Verma also served as Indiana’s health reform lead following the passage of the ACA.

We may therefore see an increased reliance by states and the federal government on Section 1115 waivers at least in the short-term, during any lead-up to legislative change. However, while early indications suggest that modifications blocked by the current administration, such as the conditioning of eligibility on work-related activity, could be green-lighted by the new administration, it is not yet clear exactly how the new administration will exercise its discretionary authority under the law to grant Medicaid waivers.