Medicaid Section 1115 Waivers

Several states have been given waivers allowing them to use savings from managed care Medicaid programs to cover additional beneficiaries. GAO found that country to assertions that such waivers would be "budget neutral," most of them could increase federal Medicaid expenditures. Specifically, approved spending limits for demonstration waivers in Oregon, Hawaii, and Florida could boost federal Medicaid outlays. Only Tennessee's 115 waive agreement should cost no more than the continuation of its smaller, prewaiver program and, in fact, should yield savings. Federal Medicaid spending could rise significantly if the administration continues to show a similar flexibility in reviewing state 1115 financing strategies. Five waivers have been approved since Florida's in late 1994, and the large backlog of pending waivers includes three states with large Medicaid programs--New York, Illinois, and Texas. Additional federal dollars are available along with other funding sources identified in state waiver applications. GAO believes that the potential for additional federal funding sources as a hedge against the many uncertainties states face in implementing these ambitious demonstrations--including changing economic conditions, the accuracy of cost-containment assumptions, the availability of anticipated funding cited in waiver applications, and the lack of reliable cost data on the uninsured.

GAO found that: (1) the approved spending limits for demonstration waivers in Oregon, Hawaii, and Florida are not budget neutral and could increase federal Medicaid expenditures; (2) Tennessee's 1115 waiver agreement should cost less than the continuation of its prewaiver program and result in savings; (3) although additional federal funding is relatively lower than demonstration spending under federal expenditure caps, federal Medicaid expenditures could increase rapidly if similar flexibility in reviewing state 1115 financing strategies is allowed; (4) five waivers have been approved since late 1994, and the backlog of pending waivers includes three states with large Medicaid programs; (5) additional federal funding is available to protect against the uncertainties states face in implementing demonstrations; and (6) it remains unclear whether the states implementing demonstrations will exceed their 1115 waiver funding caps.