Medicaid and State Health Care Reform: Process, Programs, and Policy Options

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States have long been proponents of changes to the current health care system. As major purchasers of health care and partners in the Federal/State Medicaid program, States are at the forefront of health care policy issues. Current public debate focuses on the ability to pay for rapidly increasing health care costs and how to provide universal insurance coverage, as well as access to high-quality, affordable care. Faced with congressional mandates to expand Medicaid services and escalating Medicaid costs amid diminishing resources, States have been seeking remedies for their health care financing problems for some time.

With health care reform stalled at the Federal level, States are relying increasingly on the flexibility provided under section 1115 of the Social Security Act to restructure their existing programs by implementing both incremental and comprehensive reform initiatives. Section 1115 waivers provide States with flexibility from meeting certain statutory requirements of the Medicaid program. Congress has provided DHHS with this discretionary waiver authority as a mechanism to test new and innovative approaches to the Medicaid program. While certainly not the answer for all States, section 1115 waivers do represent a valuable option for those States seeking to experiment with new methods of health care delivery and financing.

A major issue at the Federal level during the recent health care reform debate was whether health care reform should consist of one national system or whether States should bear primary responsibility for reform efforts. Irrespective of the merits of these arguments, there is a general consensus that there is much to be learned from individual State reform endeavors. This was recognized by President Clinton who, shortly after taking office, committed to the Nation's governors that the Administration would work with the States in the testing of new ideas and programs within existing health and welfare demonstration waiver authorities.

In August 1993, policy principles reflecting these commitments were enunciated, and ultimately published in the Federal Register (1994).

The Administration's commitments include the following:

* Streamlining the process for considering waivers pursuant to section 1115 of the Social Security Act, and establishing procedures by which Federal agencies can work constructively with the States to develop research and demonstrations in areas consistent with DHHS policy goals. * DHHS's consideration of proposals that test alternatives that deviate from that policy direction. * Waivers would be approved for a duration sufficient to provide an adequate test of new policy approaches (large-scale statewide reform programs will typically require waivers for a 5-year period, given their magnitude and complexity).

Furthermore, DHHS is committed, if appropriate, to working with State governments to seek permanent statutory change reflecting successful aspects of waiver programs.

This article will provide a description of different waiver authorities available to the States. A profile of section 1115 waivers is provided, including a description of the waiver review, implementation, and evaluation processes, and current State health care reform initiatives utilizing section 1115 waiver authority. A discussion of policy implications and legal issues pertaining to the use of section 1115 waivers is also provided.


Two different types of waivers are available to the States to increase their flexibility in providing high-quality, efficient health care services through the Medicaid program. Both section 1915 "program" waivers and section 1115 "research and demonstration" waivers are designed to exempt States from certain statutory requirements as set forth in the Social Security Act. These waivers, which are delegated to HCFA by the Secretary of DHHS, allow States to pursue program options not available through the State plan amendment process. …