Under authority granted by Section 1115 of the Social Security Act (the Act), the Centers for Medicare and Medicaid Services (CMS) has broad latitude to permit states to pursue a range of program changes. Waivers can encompass a relatively small portion of a state’s Medicaid program (e.g. a disease specific intervention or a family planning program) or the entire program including long-term care and the disproportionate share hospital (DSH) program. While some important aspects of the program cannot be waived, there are many options in between these two ends of the spectrum.
In order to better understand the options available to California, it is important to have a working vocabulary of key concepts:1
Special Terms and Conditions: Each waiver is an agreement between the federal government and a state. The specifications of the agreement are clearly laid out, much like a contract.
Budget Neutrality: Generally waiver agreements state that the waiver’s costs over the five-year approval period cannot exceed an estimate of how much the Medicaid program would have spent in absence of the waiver. In technical terms, the “with-waiver” cost to the federal government cannot exceed the “without-waiver” cost projection over five years. There are some waivers, such as California’s hospital and uninsured waiver that set budget neutrality at a flat dollar amount. The concept of budget neutrality is not codified in statute or regulation, giving the federal government discretion. In general, the without-waiver ceiling can only include program elements that would otherwise be allowable under the Medicaid statute; this has to be balanced against the with-waiver expenditures including new elements such as services provided or coverage of childless adults.2 Budget neutrality can be expressed in terms of an aggregate cap or a per capita cap.
Aggregate Cap/Block Grant: This refers to situations where the five-year budget neutrality cap is a pre-determined amount that is not subject to change even if there are extraordinary circumstances such as a downturn in the economy that drives up Medicaid enrollment.
Per Capita Cap: Under a per capita cap, the state and CMS agree to certain budget parameters such as a per-member-per-month cost and an inflation factor, but the actual spending ceiling takes into consideration the actual enrollment in the program.
1 This memo is intended to provide a high-level overview; for more detailed materials please refer to . This website is a repository of instructional and analytical materials that were developed for the Working Committee on Waiver Development and Medi-Cal Expansion in 2007 and 2008.
2 The cost of childless adults cannot be included in formulating the without-waiver spending ceiling because states are not permitted to coverage this group under the Medicaid statute without a waiver.
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