Unpacking the Risks – What Happens When Funding Disappears?
Section 1115 demonstrations have long offered states the flexibility to design and implement Medicaid programs that reflect their unique populations, provider landscapes, and care delivery goals. From addressing housing insecurity to building cross-sector data infrastructure, these innovations have filled critical gaps in services and improved outcomes for some of the nation’s most vulnerable populations.
But with CMS’s April 2025 announcement that it will no longer authorize matching funds for Designated State Health Programs (DSHPs) and Designated State Investment Programs (DSIPs)—and a broader effort to restrict 1115 waiver flexibility—states are now confronting a difficult reality: What happens when those innovations no longer qualify for federal support?
The Stakes Are High—and Deeply Human
Let’s look at the ripple effects through the lens of those most impacted.
1. Medicaid Beneficiaries
Immediate Impacts:
Loss of housing transition services, food access supports, or care management programs that enabled stability and independence.
Reduced access to integrated care for behavioral health or complex chronic conditions.
Fragmentation of services as pilots or enhanced supports end abruptly.
Long-Term Risks:
Higher rates of institutionalization, especially among people with disabilities, older adults, and those with serious mental illness.
Increased use of emergency departments and inpatient care in place of preventative or community-based services.
Widening health disparities as person-centered supports are scaled back.
Real-World Scenario: A Medicaid enrollee in Oregon who recently secured housing after incarceration with the help of a Medicaid-funded tenancy support service may now lose that resource—just as they’re transitioning back into the community. Without a replacement, their housing may become unstable, triggering costly crisis interventions, or recidivism.
2. Families and Informal Caregivers
Immediate Impacts:
A growing burden of care responsibilities—without formal supports like respite services, home modifications, or care coordination.
Emotional and financial stress as families become the de facto providers of services previously covered by the Medicaid waiver.
Long-Term Risks:
Increased caregiver burnout, which may drive earlier placement of loved ones into institutional settings.
Greater risk of neglect or unsafe conditions, especially when caregivers are working multiple jobs or managing complex needs without clinical support.
Real-World Scenario: In North Carolina, a mother providing care to her adult child with a developmental disability may have relied on Medicaid-funded transportation to connect to day programs. If the Healthy Opportunities Pilot is not renewed or matched, that transportation disappears—cutting off access to services and increasing the caregiver’s daily load.
3. States and Medicaid Agencies
Immediate Impacts:
Funding gaps that require difficult budget reallocations or service reductions.
Loss of momentum on value-based care models that have taken years to develop.
Strain on agencies tasked with maintaining compliance while pivoting away from previously approved innovations.
Long-Term Risks:
A chilling effect on future innovation, particularly in areas not traditionally reimbursable under Medicaid (e.g., housing, food, employment).
Fragmentation between Medicaid and public health systems, eroding the integrated structures many states have worked hard to build.
Reversal of gains in health equity, particularly for communities who benefited from tailored supports tied to social determinants of health.
Real-World Scenario: California’s CalAIM initiative is deeply intertwined with its long-term strategy to shift Medi-Cal into a person-centered, whole-health program. Without matching funds for ECM or Community Supports, California may need to absorb the cost of sustaining these services—or risk dismantling the very infrastructure built to reduce long-term dependency on institutional care.
These Are Not Just Policy Changes—They Are System Shocks
Section 1115 waivers helped states move from a reactive care system to a proactive, coordinated model focused on dignity, independence, and autonomy. When matching funds are removed, the fallout is not just programmatic—it’s systemic. Services shrink. Trust erodes. Lives are disrupted.
Summary of Risk Impacts
Medicaid Beneficiaries - Loss of integrated supports, risk of institutionalization, worse outcomes
Families & Caregivers - Increased financial/emotional strain, loss of respite and navigation supports
States & Agencies - Budget shortfalls, legal uncertainty, program rollback, diminished innovation capacity
What We’re Seeing Is a Policy Retrenchment—Not a Rejection of Impact
Importantly, this policy shift isn’t a reflection of failure. Many of these programs are delivering real results. But CMS’s position is rooted in its interpretation of what Medicaid is authorized to fund. That interpretation now demands more explicit alignment with coverage and health outcomes tied directly to Medicaid beneficiaries—not broader system transformation.
What Can Stakeholders Do Now?
In the next post, we’ll unpack what states, providers, advocates, and policy leaders can do to navigate this new reality—how to preserve the gains made and strategically position Medicaid innovation within the constraints of the current landscape.
