Health Care 1 Doctor

Health: Medicaid Demonstration Waivers (2014-21)

Federal spending on Medicaid demonstrations could be reduced by tens of billions of dollars if the Department of Health and Human Services were required to improve the process for reviewing, approving, and making transparent the basis for spending limits approved for Medicaid demonstrations. GAO's work between 2002 and 2014 has shown that HHS approved several demonstrations without ensuring that they would be budget neutral to the federal government.

Year Identified: 2014
Area Number: 21
Area Type: Cost Savings & Revenue Enhancement

2 Total Action(s)

Action 1
Partially Addressed

Congress could consider requiring the Secretary of Health and Human Services (HHS) to improve the Medicaid demonstration review process, through steps such as improving the review criteria, better ensuring that valid methods are used to demonstrate budget neutrality, and documenting and making clear the basis for the approved limits. GAO had previously recommended that the Department of Health and Human Services take these actions.

Type
Congressional
Last Updated
March 31, 2022
Progress:

No legislative action taken. As of March 2022, no legislation has been passed in the 117th Congress to require HHS to improve the Medicaid demonstration review process as GAO suggested in January 2008. Over the past several years, however, the Centers for Medicare & Medicaid Services (CMS) within HHS, have taken actions that improve some aspects of the Medicaid demonstration review process. In May 2016, the agency began implementing new policies to curtail some problematic methods of determining budget neutrality as states renewed their demonstrations. In August 2018, CMS issued written guidance on the process and criteria the agency uses to determine whether Social Security Act section 1115 demonstration projects are budget neutral, including the policies begun in 2016. The guidance was communicated as a State Medicaid Directors Letter and is available on the CMS website. These new policies and related guidance letter partially address the recommendation; for example, they place limits on the amount of unspent funds under demonstration spending limits that states are allowed to carry over from previous years. Additionally, the letter describes the process and methods for determining budget neutrality. GAO maintains that more changes are needed in the methods allowed to determine budget neutrality of section 1115 demonstrations so that they do not add to what federal spending would have been in their absence. In particular, relying on a state's actual spending rather than hypothetical cost estimates could potentially result in significant federal savings.

Implementing Entity:
Congress
Action 2
Partially Addressed

The Secretary of Health and Human Services (HHS) should reconsider spending limits for the two state demonstrations, and make appropriate adjustments to spending limits for the remaining years of each demonstration.

Type
Executive Branch
Last Updated
March 31, 2022
Progress:

As of March 2022, HHS had taken some action to address GAO's July 2013 recommendation. Beginning in May 2016, the Centers for Medicare and Medicaid Services (CMS) began implementing a new budget neutrality policy as states renewed their demonstrations. The new policy, later outlined in a 2018 Letter to State Medicaid Directors, addressed certain problems that GAO identified in its prior work related to states' allowed methods for determining budget neutrality of their demonstrations.

CMS is phasing in methods established under this new policy for all states, including the two states for which GAO recommended adjustments. One portion of the policy, under which spending limits are updated to reflect more recent spending data, has been applied to states seeking a full extension of their demonstrations beginning in 2021, according to CMS officials. This portion of the policy will address concerns GAO identified for one state once its demonstration is renewed. However, the agency continues to allow states to include hypothetical costs when determining demonstration spending limits, an action GAO identified as a concern for a second state's demonstration spending limit. GAO will continue to track and review the changes made in the two states. The methods of the new budget neutrality policy that have been phased in have reduced spending limits in 10 states, including the two states identified by GAO.

As of June 2021, CMS estimated that, for the 10 renewed demonstrations, the federal share of these demonstration spending limits will be reduced by about $141 billion over a 7-year period, including $15 billion in 2021. Addressing additional budget neutrality problems GAO identified, such as HHS's policy that allows states to include hypothetical costs when determining budget neutrality, as well as phasing in additional methods established under the new policy, could result in significant additional federal savings.

Implementing Entity:
Department of Health and Human Services
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