Frequently Asked Questions about Medicaid Waivers

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In an effort to help you understand issues surrounding state Medicaid waivers, Families USA has provided answers to some of the most frequently asked questions. 

Frequently Asked Questions about Medicaid Waivers

1. What is a waiver?
2. Are there different kinds of waivers?
3. What is a Section 1115 waiver?
4. What is a HIFA waiver?
5. Is a HIFA waiver always bad?
6. What’s the difference between a Medicaid waiver and a SCHIP waiver?
7. What’s the difference between a HIFA waiver and a Section 1115 waiver?
8. My state wants to change its Medicaid program in some way—does it need a waiver to do that?
9. What benefits do states have to provide to enrollees?
10. Can my state provide different benefits to some people in Medicaid or SCHIP than they do to others?
11. What is premium assistance?
12. If my state pursues a waiver, does a premium assistance program have to be part of it?
13. Can my state use a waiver to reduce coverage?
14. Which states have submitted waiver applications?
15. Which states already have waivers?

1. Q: What is a waiver?

A. States have a lot of flexibility when it comes to designing and running their Medicaid and State Children’s Health Insurance Programs (SCHIPs). However, there are important federal laws that set minimum standards for operating those programs. Sections 1115 and 1915 of the Social Security Act define specific circumstances in which the federal government may, at a state’s request, “waive” certain provisions of the federal Medicaid and SCHIP laws. The “waiver” is the agreement between the federal government and the state that exempts the state from the provisions of the federal law that were waived. The waiver includes special terms and conditions that define the strict circumstances under which and for whom the state is exempt from the provisions of federal Medicaid and SCHIP laws.

2. Q: Are there different kinds of waivers?

A. Yes. Not all waivers are alike. Waivers are based on either Section 1115 or Section 1915 of the Social Security Act.

There are several kinds of Section 1115 waivers. Some Section 1115 waivers are statewide, comprehensive demonstrations that affect the majority of people who receive Medicaid in that state. These include waivers that expand coverage to all state residents with incomes below a certain level. Other demonstration projects are more limited in scope. Examples of these include waivers that provide family planning services to low-income women who would not otherwise qualify for Medicaid or waivers that allow certain people with disabilities to manage their health care purchasing (Cash and Counseling waivers).

In 2001, HHS announced the creation of a special kind of Section 1115 waiver called a “Health Insurance Flexibility and Accountability Initiative” (HIFA) waiver (see below for more about HIFA waivers). There are also Cash and Counseling waivers, family planning waivers, managed care waivers, and plain old Section 1115 waivers that expand coverage to people who would otherwise be ineligible or that eliminate coverage of some services for some people in Medicaid. Most of the waivers discussed in the Waiver Tool Box are waivers that reduce access to health care and make large structural changes to a state’s Medicaid program.

There are also Section 1915(b) waivers. These waivers are limited in what they allow—namely, they allow states to require Medicaid beneficiaries to enroll in managed care plans, as opposed to receiving health care through individual providers on a fee-for-service basis. However, since the late 1990s, states have been able to move beneficiaries to mandatory managed care delivery systems by using state plan amendments rather than by using waivers, so 1915(b) waivers are not as commonplace as they once were.¹

Finally, Section 1915(c) waivers allow states to provide home- and community-based care to individuals who would otherwise be institutionalized. The waivers discussed in our Waiver Tool Box focus on Section 1115 waivers and not on Section 1915 waivers.

3. Q: What is a Section 1115 waiver?

A. Section 1115 of the Social Security Act allows the Secretary of the Department of Health and Human Services (HHS) to suspend certain laws or regulations that govern programs authorized by the Social Security Act, such as Medicaid and SCHIP, in the context of a state “research and demonstration project.” A Section 1115 Medicaid or SCHIP demonstration project should “promote the objectives" of the Medicaid program.

Some Section 1115 waivers are statewide, comprehensive demonstrations that affect the majority of people who receive Medicaid in that state. These include waivers that require people to enroll in a managed care plan or that expand coverage to all state residents with incomes below a certain level. Other demonstration projects are more limited in scope. Examples of these include waivers that provide family planning services to low-income women who would not otherwise qualify for Medicaid, or those that allow certain people with disabilities to manage their health care purchasing (e.g. Cash and Counseling waivers).

In 2001, HHS announced a special kind of Section 1115 waiver called a “Health Insurance Flexibility and Accountability Initiative” (HIFA) waiver (see below for more about HIFA waivers). There are also other kinds of Section 1115 waivers, including Cash and Counseling waivers, family planning waivers, and plain old Section 1115 waivers that expand coverage or eliminate coverage of some services for some people in Medicaid.

Section 1115 waiver projects are generally approved to operate for a five-year period and must maintain “budget neutrality.” The budget neutrality requirement means that the waiver program cannot cost the federal government more than the state would have spent on Medicaid for people covered by the waiver if the waiver did not exist.

4. Q: What is a HIFA waiver?

A. A Health Insurance Flexibility and Accountability (HIFA) waiver is a type of Section 1115 waiver created by the Bush Administration in August 2001. HIFA waivers were purportedly intended to extend health coverage to people who are uninsured without increasing federal Medicaid funding. To do this, the Administration’s HIFA guidance announced that states could find “savings” in their Medicaid programs by cutting services or raising out-of-pocket costs for people who already had Medicaid and then use this “savings” to expand coverage to the uninsured. States have also been encouraged to establish premium assistance programs to help people buy employer-sponsored coverage, to offer Medicaid coverage with a significantly reduced benefit package, and to establish higher cost-sharing for the people who are newly eligible for the program.

The Administration claims that HIFA was designed to encourage states to expand Medicaid and SCHIP coverage to adults with incomes below 200 percent of the federal poverty level. However, CMS has not always required states to implement the expansion part of HIFA waivers. So, HIFA waivers have been used to cut eligibility and services, as well as to expand coverage.

5. Q: Is a HIFA waiver always bad?

A. No. HIFA waivers are by definition neither bad nor good. A waiver is what a state makes of it. However, the process by which the federal government is encouraging states to submit waivers is questionable. By issuing a template for waiver applications, the Administration appears to be sending a message to states that there need not be a new or different research goal for each waiver demonstration project. In essence, the Administration seems to be saying that waivers are simply a way for states to circumvent the bounds of Medicaid and SCHIP law and regulations in order to operate the programs in ways that are different from what Congress intended.

6. Q: What’s the difference between a Medicaid waiver and a SCHIP waiver?

A. A Medicaid waiver changes a state’s Medicaid program, while a SCHIP waiver changes a state’s Children’s Health Insurance Program (SCHIP). Simple, right? Wrong. The difference between these kinds of waivers really has to do with where the program funding comes from. If a state is seeking to expand health coverage with Medicaid funds or to cut Medicaid in ways not otherwise allowed by law, it needs a Medicaid waiver. If it is seeking to use SCHIP funds to expand coverage to a new group of people (e.g., adults), it needs a SCHIP waiver. For example, in the past, some states that did not use all of their SCHIP funds for children’s health coverage sought SCHIP waivers to finance expansions for the parents of SCHIP- and Medicaid-eligible children and sometimes for childless adults. (Note: Recent legislation prohibits states from seeking new SCHIP waivers to use SCHIP funds to expand coverage of childless adults.)

7. Q: What’s the difference between a HIFA waiver and a Section 1115 waiver?

A. There really is no difference. A HIFA waiver is one type of Section 1115 waiver and is part of a waiver initiative that the Bush Administration created in 2001. For more information concerning Section 1115 waivers and HIFA waivers, see questions 3 and 4.

8. Q: My state wants to change its Medicaid program in some way—does it need a waiver to do that?

Maybe. States have a lot of flexibility to design their Medicaid programs within the limits established by federal law, so there are a lot of changes that states can make without a waiver. And the Deficit Reduction Act of 2006 (DRA) gives states even more authority to make changes to their Medicaid benefits packages and cost-sharing without seeking a waiver. So, the first thing to look for when your state is proposing a change to its Medicaid program is whether the change is allowable under federal law. If not, then the state would need to request a waiver from HHS to make that change.

Sometimes, a state will request a waiver to do something that is allowed under federal Medicaid law, but it wants to establish firm cost controls or make other programmatic changes at the same time that require a waiver. For example, a state may expand coverage for the parents of children who are eligible for Medicaid without a waiver, but if it wants to give them a reduced benefit package, charge them higher cost-sharing, or limit how many parents can enroll, it would need a waiver to make those changes.

It is also very important to note that a state may only waive certain provisions of Medicaid or SCHIP law. According to Section 1115 of the Social Security Act, a state may only waive provisions of Section 1902 of the Medicaid Act and not other sections of the law pertaining to Medicaid. This section involves Medicaid state plans and tells states what must be in their Medicaid programs and how they must function.

Attention state advocates: If your state is seeking a waiver and you are wondering whether or not the state has the authority to waive a certain aspect of the Medicaid law, you should check to see whether that provision falls under Section 1902. If not, it may be a provision that cannot be waived. See the Web site of the National Health Law Program for more information about what provisions can and cannot be waived.

9. Q: What benefits do states have to provide to enrollees?

A. Medicaid benefits are divided into two categories—“mandatory” and “optional.” Mandatory benefits are services that states must cover. These include, for example, inpatient and outpatient hospital services, physician services, and lab and x-ray services. States can choose whether to provide optional services. However, many “optional” benefits are actually essential to the health of enrollees. For example, prescription drugs and many mental health services are considered “optional” services under Medicaid, even though they are critical health services to individuals for whom they are medically necessary.

When a state decides to cover an optional service, it generally must make that service available to all the groups that the state’s Medicaid program covers (both mandatory and optional groups). However, with the passage of the Deficit Reduction Act (DRA), states now have the option to change their benefit packages so that not all groups must be offered the same benefits. You can read more about these changes in Families USA’s publication Medicaid Benefit Package Changes: Coming to a State Near You?

10. Q: Can my state provide different benefits to some people in Medicaid or SCHIP than they do to others?

A. Under a new provision of federal law, yes. The Deficit Reduction Act (DRA) allows states to provide different benefit packages for certain Medicaid populations without a waiver. See Medicaid Benefit Package Changes: Coming to a State Near You? for more information. But states have been able to waive the Medicaid requirements pertaining to comparability of services for some time.

11. Q: What is premium assistance?

A. Premium assistance uses federal and state Medicaid and/or SCHIP funds to help low-income families purchase private health insurance. How does this work? States pay the monthly premiums (in whole or part) of Medicaid-eligible individuals who choose to purchase private health insurance. The state might also choose to pay the premiums for non-Medicaid eligible family members. To learn more about premium assistance programs, see Families USA’s Premium Assistance: The Privatization of Medicaid.

12. Q: If my state pursues a waiver, does a premium assistance program have to be part of it?

A. Premium assistance does not have to be part of a Section 1115 waiver application, although a growing number of states such as Illinois, New Jersey, and Oregon have included such measures in recent waivers. Premium assistance is one component contained in HIFA waiver guidelines, however. So, given the Bush Administration’s intent to infuse the Medicaid program with private health insurance market principles, it is likely to remain a component of current and future waiver initiatives under this Administration.

13. Q: Can my state use a waiver to reduce coverage?

A. Unfortunately, yes. Because of the way that the budget neutrality requirement works, the federal government cannot spend more money on a waiver than it would have spent without the waiver. Although there are ways that states can expand Medicaid through a waiver without reducing services or implementing cost-sharing, states may choose to expand coverage to more individuals by making cuts somewhere else in their Medicaid programs.

In 2002, Utah received approval for and implemented its Primary Care Network (PCN) through a Section 1115 waiver. This waiver expanded coverage to thousands of new individuals, but it also dramatically scaled back benefits so that everyone (including most already covered Medicaid beneficiaries) received a limited benefit package with an emphasis on preventive care. Individuals enrolled in PCN do not receive many important benefits, including inpatient hospital and mental health services. For more about Utah’s waiver, see Families USA’s issue brief, Utah Primary Care Network Medicaid Program.

And, although many waivers do have an expansion component, states can use waivers to cut coverage for people in Medicaid without expanding coverage for new groups of people. Although this has not been common in the past, it is now becoming increasingly more common.  

14. Q: Which states have submitted waiver applications?

A. A number of states have waiver applications pending with CMS. Some of them are listed on the CMS Web site. Although Families USA does not list all of the pending Section 1115 waivers on our Web site, we do provide summaries and information on the pending waivers that we consider to be the most dangerous—those waivers that seek to fundamentally restructure the Medicaid program. (We also provide information on some expansion waivers and waivers that primarily deal with hospital financing.)

15. Q: Which states already have waivers?

A. For information concerning which states have already implemented waivers, please see the Centers for Medicare and Medicaid Services (CMS) Web site.

¹Changing the delivery system from fee-for-service to managed care doesn’t just have to be done through a 1915(b) waiver. Section 1115 waiver authority is broad enough that it can be used to waive multiple sections of the Medicaid Act, including implementing managed care. For example, a state can use a Section 1115 waiver when it wants to move a group into managed care and expand Medicaid to cover a new population.

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