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HHS Secretary Tommy G. Thompson is committed to responsiveness to states, including fair and timely review of waiver proposals and state plan amendments. While some waivers in the past have taken years to review, Secretary Thompson has begun a review of the process in order to eliminate unnecessary delay and to bring about timely decisions for waivers where new issues arise or detailed information is needed.

Medicaid and SCHIP Background

Medicaid is a state-federal partnership that pays for health and long-term care services to certain low-income individuals, including children, the elderly and people with disabilities. Each state administers its Medicaid program within the general requirements of federal law and regulations. States and the federal government share the cost of the program.

SCHIP is a program created in 1997 to provide health insurance coverage to children in families that earn too much to be eligible for traditional Medicaid but not enough to afford private health insurance. It is also jointly administered and financed by states and the federal government. States have broad flexibility under Title XXI of the Social Security Act, which authorizes the SCHIP program, to expand coverage to uninsured children either through Medicaid, a separate health insurance program, or a combination of both.

To encourage innovation, federal law allows states to request waivers of certain federal Medicaid requirements related to the coverage and delivery of health care services to Medicaid beneficiaries. The law allows for two kinds of Medicaid waivers - Section 1115 research and demonstration waivers which usually involve comprehensive health care reform projects, including expanded coverage to include people who otherwise would not be eligible for Medicaid; and Section 1915 program waivers, which involve waiving specific provisions of Medicaid law, especially to allow use of managed care and nursing alternatives.

Waivers are approved for several years, and then may be renewed. Today, every state has received and implemented at least one Medicaid program waiver, often to provide home- and community-based services as an alternative to nursing home care, or to require certain Medicaid beneficiaries to enroll in managed care plans. In addition, 18 states have implemented comprehensive health care reform demonstrations. More information about Medicaid waivers and demonstrations is found at cms.hhs.gov/medicaid/waivers/.

Section 1115 Research and Demonstration Programs: Section 1115 of the Social Security Act gives the HHS Secretary broad authority to authorize research, pilot, or demonstration projects that are likely to assist in promoting the objectives of the Medicaid program. Under such demonstration projects, states have broad flexibility to test substantially new ideas in expanding coverage and service delivery.

Under a Section 1115 demonstration, states can obtain federal Medicaid matching funds to provide services that Medicaid otherwise could not cover and/or to cover individuals who otherwise would not be eligible for the Medicaid program. For instance, states today use these demonstrations to expand coverage to people otherwise unable to obtain health insurance, to provide greater access to primary care services, and to increase their use of managed care.

The demonstration is to be budget neutral over the project's life, meaning that federal taxpayers would not be expected to pay more under the demonstration than they would without it. For example, states in the past have expanded their reliance on managed care in a demonstration to generate savings to support the waiver's expanded coverage or eligibility. Demonstrations are typically approved for a five-year period and may be renewed.

In April 2001, 18 states were operating comprehensive health care demonstrations under a Section 1115 waiver - Arizona, Arkansas, California (Los Angeles County), Delaware, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New York, Ohio, Oklahoma, Oregon, Rhode Island, Tennessee, Vermont and Wisconsin.

Section 1915 program waivers. States may request waivers of certain Medicaid requirements as allowed under Sections 1915(b) and 1915(c) of the Social Security Act. Such waivers can give states expanded flexibility to provide services to Medicaid beneficiaries using innovative or effective approaches that otherwise would not be permitted under Medicaid laws and regulations. The waivers are frequently used by states to promote home- and community-based services, or to use managed care in their Medicaid programs.

Section 1915(b) allows states to waive Medicaid's "freedom-of-choice" requirement, which generally ensures Medicaid beneficiaries have a choice of providers. With such a waiver, states may: require beneficiaries to enroll in managed care plans; create specialty care delivery systems, such as managed behavioral care; create programs that are not available statewide; or provide enhanced services for beneficiaries. Generally, states use the savings generated by managed care to promote additional benefits or services for Medicaid beneficiaries. To obtain approval, the waiver request cannot negatively affect beneficiary access to services or quality of care, and must be cost effective, meaning it will not cost federal taxpayers more than it would cost without the waiver. These waivers initially are granted for two years.

Section 1915(c) also allows states to develop creative alternatives to placing Medicaid beneficiaries in nursing homes, hospitals or other institutions. Generally, these waivers allow states to provide home- and community-based services - including home health aide services and personal care services - to help individuals stay out of institutional settings and thus preserve their independence and ties to family and friends. States may also provide some non-medical services to eliminate the need for participants to be placed in an institution. States may use these waivers to serve the elderly, people with physical or developmental disabilities, mental retardation or mental illness, and those with a specific illness or condition, such as technology-dependent children or people with AIDS. States may use the waiver to cover individuals who would qualify for Medicaid if placed in an institution. To obtain a waiver, the state must show that its proposal includes safeguards to protect the health and welfare of residents and that the services provided under the waiver will cost federal taxpayers no more than the expected costs without a waiver. These waivers are initially approved for three years, and may be renewed for additional five-year periods.

The SCHIP law allows HHS to grant states Section 1115 demonstration waivers under SCHIP. In July 2000, HHS issued guidance to states regarding SCHIP demonstration projects, including the factors that HHS would consider when reviewing those projects. As of April 2001, HHS had approved SCHIP demonstration projects in three states - New Jersey, Rhode Island and Wisconsin. The demonstrations allow these states to offer health insurance coverage to parents of children eligible under either SCHIP or Medicaid. In addition, the New Jersey and Rhode Island demonstrations expanded SCHIP coverage to higher-income pregnant women.

Before considering requests for SCHIP waivers, HHS requires states to operate their program for at least one year and to submit a comprehensive program evaluation as required by law. This policy ensures that states have adequate experience with their programs to determine what additional flexibility might be needed and what types of demonstration projects might promote the expansion of coverage. The policy also encourages states to use the federal money available under SCHIP to cover the intended population of low-income children first before expanding coverage to other groups. More information about SCHIP waivers can be found at www.cms.gov/.

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Note: All HHS press releases, fact sheets and other press materials are available at http://www.hhs.gov/news.