Section 1115 waivers and budget neutrality: using Medicaid funds to expand coverage.

Section 1115 of the Social Security Act permits the Secretary of the Department of Health and Human Services (DHHS) to waive certain portions of the federal Medicaid Act for a fiveyear demonstration project, if the demonstration is budget neutral to the federal government. Once the budget neutrality test is met, the Secretary, through the Health Care Financing Administration (HCFA), can grant a state’s request to alter Medicaid eligibility standards, benefit rules, payment provisions, and other rules. In short, Section 1115 waivers offer a way to design coverage expansions using Medicaid funding. Typically, the 1115 waiver is used to expand coverage to an otherwise uninsured group. HCFA’s records show that about 1.5 million people are now included in expansion populations across the country. The catch: budget neutrality. Put simply, the costs of covering the “expansion population” must be offset by other programmatic changes in Medicaid that lower the overall spending.