Medicaid Section 1115 Waiver Reform – What Stakeholders Need to Know

Section 1115 demonstration waivers have long served as a flexible policy tool for states to test innovative Medicaid approaches—addressing social determinants of health, stabilizing high-risk populations, and modernizing care infrastructure. However, in April 2024, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) issued guidance that significantly narrows the scope of what is eligible for federal matching funds under these waivers.

Key changes include the elimination of federal matching funds for Designated State Health Programs (DSHPs) and Designated State Investment Programs (DSIPs) and a sharper focus on Medicaid’s “core mission”: coverage, access, and outcomes for eligible individuals.

Key Issues

1. Shift in CMS Priorities

CMS has reaffirmed that 1115 waivers must support core Medicaid functions, meaning demonstration projects must have:

• Direct benefit to Medicaid-eligible individuals

• Ties to covered services or eligibility

• Measurable improvements in health outcomes or access

2. Loss of Funding Mechanisms

DSHPs and DSIPs previously enabled states to receive federal Medicaid match for:

• Public health investments

• Infrastructure and IT upgrades

• Workforce development

• Housing and social care integration

Their elimination disrupts financial planning for many states and removes a critical tool for Medicaid transformation.

Real-World Implications

For Beneficiaries

• Loss of non-clinical services such as housing transition, medically tailored meals, and care coordination.

• Increased risk of hospitalization or institutionalization.

• Greater reliance on emergency care.

For Families and Caregivers

• Higher out-of-pocket expenses.

• Reduced support for respite, transportation, and navigation services.

• Increased caregiving burden.

For States

• Budget gaps where DSHP/DSIP funds had supported Medicaid transformation.

• Legal and compliance uncertainty in existing demonstration projects.

• Retreat from cross-sector initiatives in housing, behavioral health, and public health.

State Innovation Examples at Risk

• Oregon: Medicaid-covered rent, air conditioning, and food support for eligible Medicaid enrollees, especially during transitions such as from incarceration or homelessness.

  • Beneficiaries: At-risk individuals may lose access to stable housing and nutrition—critical social determinants that support recovery and reduce hospitalizations.

  • Families: Increased caregiver burden as family members may need to fill in gaps for housing or food security.

  • State: Could face rising acute care costs (e.g., ER use, psychiatric admissions) and stress on safety-net systems, reversing gains in Medicaid cost-efficiency.

• North Carolina: Healthy Opportunities Pilots delivering non-medical services like housing supports, transportation, and healthy food to address health-related social needs via managed care organizations (MCOs).

  • Beneficiaries: Loss of access to non-clinical services that prevent health crises, especially for low-income and rural populations.

  • Families: May need to absorb care coordination roles or direct out-of-pocket spending for basic needs.

  • State: Could see reduced returns on its value-based care investments and may abandon its multi-year health equity strategy.

• California: CalAIM Enhanced Care Management and Community Supports, which fund services like asthma remediation, medically tailored meals, and recuperative care.

  • Beneficiaries: High-need groups like people experiencing homelessness or with serious mental illness lose support that stabilizes their conditions.

  • Families: Families may face crisis care events (e.g., emergency shelter, ER use) that could have been prevented.

  • State: May face setbacks in deinstitutionalization and hospital discharge efficiency, with ripple effects across behavioral health systems.

• Massachusetts: ACO-based flexible services for non-traditional health-related services (e.g., utility support, transportation, medically tailored meals) through its Flexible Services Program.

  • Beneficiaries: Complex-needs individuals, especially those dually eligible for Medicare and Medicaid, may lose services that stabilize housing and nutrition.

  • Families: More personal financial burden and higher risk of hospitalizations or institutionalization.

  • State: Could undermine its nationally recognized model for integrated care and population health.

• Washington: Tenancy supports and employment navigation under Foundational Community Supports. It also receives IMD (Institution for Mental Disease) waivers to fund short-term stays in psychiatric facilities for Medicaid enrollees.

  • Beneficiaries: Those with serious mental illness or housing instability face compounded barriers to recovery and community living.

  • Families: Become default crisis managers—often with little support or training.

  • State: Costs of emergency services and long-term care rise; mental health parity regresses.

Strategic Recommendations

For States

• Re-align waiver proposals with Medicaid coverage and service definitions.

• Strengthen data infrastructure to demonstrate ROI on new interventions.

• Identify braided funding alternatives for initiatives now ineligible for match.

For Providers and Health Systems

• Collaborate with Medicaid MCOs on in-lieu-of services and value-added benefits.

• Prepare for funding shifts that may impact SDOH initiatives and care coordination.

• Document and share success stories and outcome data tied to waiver-supported services.

For Advocates and Policy Leaders

• Center lived experience in public comments and state planning.

• Advocate for continued flexibility within Medicaid to support whole-person care.

• Monitor future CMS guidance and engage with state Medicaid offices during waiver renewals.

Final Thought

This is a moment of recalibration—not retreat. Medicaid stakeholders must now operate within clearer boundaries, but the mission remains: to build systems that support autonomy, dignity, and equitable access to care. Strategic alignment, evidence generation, and coalition-building will be essential to sustain the progress made—and to shape the next era of Medicaid transformation.