Improving Management of Medicaid Demonstration Waivers

The Secretary of Health and Human Services (HHS) has authority under Section 1115 of the Social Security Act to waive certain federal Medicaid requirements to allow states to test new ideas for achieving program objectives. However, states must show that federal spending for proposed demonstrations is "budget neutral"—that is, that federal spending for proposed demonstrations will be no greater than if the state's existing Medicaid program was continued. GAO has reported several times since the mid-1990s, however, that HHS had not adequately ensured that approved Medicaid demonstrations would be budget neutral to the federal government. The lack of budget neutrality under Medicaid 1115 demonstrations was cited as a contributing factor in adding the Medicaid program to GAO's high-risk list in 2003. The core of GAO findings included that HHS approved spending limits that were based on projections of growth that exceeded state-specific and nationwide benchmarks, HHS approved spending limits that included costs that were impermissible or inappropriate, and the basis for HHS's approval of states' demonstration spending limits was unclear and the process by which this was done was largely undocumented.

Billions of federal dollars are potentially at risk. For example, GAO reported in 2008 that HHS approved 5-year spending limits for two recently approved Medicaid demonstrations that together totaled more than $7 billion more than what was supported. Because HHS disagreed with GAO's recommendations to improve the validity of its methods for determining budget neutrality, the basis for its approval of states' spending limits, and the transparency of the review process, GAO raised these recommendations as matters for the Congress to consider in developing future legislation. In particular, GAO suggested that Congress consider requiring increased attention to fiscal responsibility in the approval of section 1115 Medicaid demonstrations by requiring the Secretary of HHS to improve the process through steps such as (1) clarifying criteria for review and approval of states' proposed spending limits, (2) ensuring that valid methods are used to demonstrate budget neutrality, and (3) documenting the basis for any approvals.

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Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise Cost and Oversight Concerns

GAO-08-87, January 31, 2008

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 77 pages)   Accessible Text   Recommendations (HTML)

Medicaid Waivers: HHS Approvals of Pharmacy Plus Demonstrations Continue to Raise Cost and Oversight Concerns

GAO-04-480, June 30, 2004

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 81 pages)   Accessible Text   Recommendations (HTML)

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects Raise Concerns

GAO-02-817, July 12, 2002

Summary (HTML)   Full Report (PDF, 71 pages)   Accessible Text   Recommendations (HTML)

Medicaid Section 1115 Waivers: Flexible Approach to Approving Demonstrations Could Increase Federal Costs

HEHS-96-44, November 8, 1995

Summary (HTML)   Full Report (PDF, 91 pages)