How Medicaid programs operate in each state is determined by two primary mechanisms. State plans serve as the contract between the Centers for Medicare & Medicaid Services and each state for the administration of Medicaid. While Medicaid waivers are a mechanism for states to seek flexibility from federal Medicaid mandates. They are often used to test new approaches.
State plan amendments (SPAs): A state plan is a contract between a state and the federal government describing how the state administers its Medicaid program. It gives assurance that a state will abide by federal rules as a condition of receiving federal funding for its Medicaid program. The state plan specifies groups covered, services provided, and methods for provider reimbursement.
Whenever a state makes changes to its Medicaid program, it sends a state plan amendment to the Centers for Medicare & Medicaid Services (CMS) for review and approval. For example, the state may wish to implement changes required by federal or state law, regulations, or court orders. States also have the flexibility to request permissible program changes, make corrections, or update their plan with new information.
Medicaid waiver authority: Strategies to reform Medicaid at the state level sometimes require exemptions, or waivers, from certain federal laws and regulations. There are several types of waivers for which a state may seek federal approval, most commonly including:
Many Section 1115 Waivers seek to expand benefits and coverage, implement delivery system changes, and restructure financing. Notable recent state 1115 Waiver proposals have included policies to impose higher than nominal premiums and cost-sharing, work requirements on certain enrollees, and lifetime limits on enrollment. While some of these proposals were initially approved (for example, work requirements), CMS later rescinded the approval or the state paused implementation due to legal challenges (see also this chapter’s section on Individual- and Employment-Based Group Plans) .
Waiver programs are authorized for two to five years, depending on the waiver type, with a maximum three-year renewal. However, states can receive five-year waivers if the waiver enrolls dual-eligible beneficiaries under Social Security Act Section 1115 (Research and Demonstration Projects), Section 1915(b), Section 1915(c), and Section 1915(d) (Waivers). The law authorizes dual-eligible waivers to be conducted over longer periods and allows them to be renewed for five-year periods if certain conditions are met.