CMS issued guidance June 11 outlining plans to update its assessment of Medicaid section 1115 demonstration projects.
Section 1115 demonstration projects allow states to test approaches for delivering and paying for Medicaid care. The June guidance stems from an HR 1 requirement. Beginning Jan. 1, 2027, CMS will not be able to approve, renew or amend demonstrations without independent certification from CMS’ chief actuary that confirms the demonstration will not increase federal spending to state Medicaid programs.
CMS is planning rulemaking on the topic, but it will provisionally apply its revised approach in 2027 if there is no final rule in place by then.
“The budget neutrality requirements we plan to propose are designed to ensure that testing new ideas doesn’t cost taxpayers more than current approaches, while improving health outcomes for the people we serve. We’re committed to making this transition smooth for states,” CMS Administrator Mehmet Oz, MD, said in a June 11 news release.
Here are five things to know about the guidance:
1. Currently, CMS evaluates budget neutrality by comparing “without waiver” and “with waiver” projected expenditures based on state data. In 2027, states would have to submit actuarial, economic, statistical or another form of rigorous analysis to show projected financial impacts of individual demonstration activities, according to a CMS letter sent to state Medicaid directors.
2. States should categorize demonstration activities as section 1115-only activities, which could not be implemented under standard Medicaid authority, and Medicaid Authorizable Populations and Services, activities that states could otherwise implement. MAPS includes care that Medicaid would otherwise cover but is delivered at a non-standard site, as well.
3. Under the changes, there would be no spending limits or budget neutrality caps, but demonstrations that would increase federal Medicaid expenditures would not move forward.
4. States would need to monitor programs based on CMS parameters, which have not yet been defined, and they would face corrective actions if expenditures do not closely align with projections.
5. If a demonstration generates savings, only savings from that demonstration period (or its most recent five years) could roll over to the next — but not to any future ones — to offset costs. Following a state’s first renewal after Jan. 1, 2027, CMS would replace the old methodology for calculating savings. However, CMS would cut the 15% cap on rollover savings for the upcoming transition.
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