CMS Signals Tougher Review of Medicaid Waiver Spending

The Centers for Medicare and Medicaid Services (CMS) targets new oversight of Medicaid demonstration project spending authorization through Section 1115 waivers. Nearly all states use demonstration waivers, including Arizona.

Late last week, CMS issued the new guidance for upcoming demonstrations beginning January 1, 2027. From that point forward, it will not approve new demonstrations, renewals or amendments unless certified by the CMS Chief Actuary. The CMS press release cites the One Big Beautiful Bill Act of 2025, which included a requirement that the CMS Chief Actuary certify that Medicaid 1115 waivers remain budget neutral, as the reason for the expanded scope of authority.

Waivers have historically been used to expand coverage of benefits to Medicaid populations and bolster program changes. Waivers themselves contain flexibilities and can be applied to the entire state Medicaid population or specific populations within the program. KFF notes that it has been a longstanding rule that 1115 waivers should not exceed what they should have cost for the state without the waiver, but typically budget neutrality calculations are determined by a per enrollee basis.

View the list of waivers approved for the Arizona Health Care Cost Containment System’s administration of Arizona Medicaid dollars.

Demonstrations currently account for one-third of all federal Medicaid dollars, and the Trump administration made clear that what’s considered “budget neutral” has been left undefined thus far. According to Healthcare Dive, a number of Biden-era flexibilities on the program have already been rolled back, and last year CMS said that it would no longer approve or extend certain demonstrations aimed at addressing social determinants of health.

Advocacy groups for home and community-based services (HCBS) providers have raised concerns that the guidance could discourage the use of waivers and reduce HCBS participation. Eric Reinarman, vice president of government relations for the Home Care Association of America told McKnight’s that the close scrutiny of expenditures both real and hypothetical could constrain states:

In the home care context, that could include demonstrations expanding HCBS eligibility to new populations, testing new supportive services, or adding benefits that are not otherwise available under Section 1915 authorities. […] CMS is moving from a more traditional budget neutrality review to a prospective, activity-by-activity analysis that requires detailed assumptions about eligibility, services, payment methodology, utilization, administrative costs and expected savings. Coupled with HR 1, this new framework could create unintended pressure on Medicaid HCBS.

This move is another step in the Trump administration’s targeted crackdown of HCBS spending. On Wednesday, the administration filed against New York State health officials over the bidding process for the state’s $10 billion home care program. Reuter’s reports that New York Governor Kathy Hochul said the suit was calculated to “attack political opponents in an election year.”