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Section 1115 waivers is one way states have covered the uninsured. Arizona’s entire Medicaid program, including long term care, operates under Section 1115 waiver authority.

Key Factors to Consider

The broad discretion allowed under Section 1115 waivers will allow California to consider a range of options in designing a program that accommodates the state’s needs.

Responding to Geographic Diversity

There is great geographic diversity in California’s health care markets. Because CMS can waive the requirement that the Medicaid program be operated the same manner in all areas of the state, California’s counties could have different service delivery designs. CMS has been somewhat reluctant to entertain proposals that expand eligibility only in certain areas of the state, but this also is within the realm of possibility. The coverage initiative element of the existing California hospital waiver creates a possible precedent for this approach.  

Choosing Size and Scope of the Waiver

It follows logically that the more of a state’s program is under the Section 1115 waiver, the bigger the base upon which to build the budget neutrality model. A $10 billion Medicaid program that generates 2 percent savings under a waiver can yield “savings” of $200 million, which could then be spent on a coverage expansion to childless adults. If the state only puts $1 billion of its program under the Section 1115 waiver, the opportunity to accrue significant savings is much less. Of course, the potential payoff has to be balanced with the potential risk. Unforeseen events and projection errors can result in the costs of the waiver being higher than the negotiated budget neutrality limit. The up-front protections against this include an aggressive negotiating posture that secures the best terms possible for the state. If the waiver is implemented and it appears the budget neutrality limit may be exceeded, the state can always seek to renegotiate the terms, take actions to contain costs, or terminate the waiver.

In determining which program elements to include in their waiver, states often stay away from including long term care or the SPD population. However, under the right conditions and with proper management, including these populations under a waiver could generate tremendous savings because so much of a state’s Medicaid spending is concentrated in these individuals and the services they receive.

Limitations to Waivers

Although CMS does have broad latitude to waive any provision in Section 1902, and to grant CNOM authority for items that would not normally be matchable under Section 1903, there are limits. CMS has chosen not to waive certain provisions in the interest of furthering its policy objectives. Other provisions, such as funding for nonqualified immigrants or the federal medical assistance percentage (FMAP), are specified as not subject to waiver authority.

Opting to Roll Waivers Together

Given that California already has multiple Section 1115 waivers, it is important to point out that having more than one waiver can be complicated and actually disadvantage the state. CMS

Health Management Associates/Harbage ConsultingPage 9

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