Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects Raise Concerns
Highlights
States provide health care coverage to about 40 million uninsured, low-income adults and children under two federal-state programs--Medicaid and the State Children's Health Insurance Program (SCHIP). To receive federal funding, states must meet statutory requirements, including providing certain levels of benefits to specified populations. Under section 1115 of the Social Security Act, the Secretary of Health and Human Services (HHS) can waive many of the statutory requirements in the case of experimental, pilot, or demonstration projects likely to promote program objectives. Since August 2001, HHS has approved four of 13 waiver proposals from states to either expand health insurance to uninsured populations or extend pharmacy coverage to low-income seniors, consistent with the new goals. Of the nine proposals still under review, five seek to expand coverage to uninsured populations, while four would provide pharmacy benefits for low-income seniors. GAO has both legal and policy concerns about the extent to which the approved waivers are consistent with the goals and fiscal integrity of Medicaid and SCHIP. The legal concern is that HHS has allowed Arizona to use unspent SCHIP funding to cover adults without children, despite SCHIP's objective of expanding health coverage to low-income children. GAO found that HHS' approval of the waiver to cover childless adults is not consistent with this objective, and it is not authorized. A related policy concern is that HHS used its waiver authority to allow Arizona and California to use SCHIP funds to cover parents of SCHIP and Medicare-eligible children with no regard to cost effectiveness when the statute provides that family coverage may be provided only if it is cost-effective to do so--that is, with no additional costs beyond covering the child. An opportunity for the public to learn about and comment on pending waivers has not been consistently provided in accordance with policy adopted by HHS in 1994. At the federal level, since 1988 HHS has not followed established procedures to publish notification of new and pending section 1115 waiver applications in the Federal Register with a 30-day comment period.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress may wish to consider amending Title XXI of the Social Security Act to specify that SCHIP funds are not available to provide health insurance for childless adults. In addition, Congress may wish to establish, for parents or guardians of SCHIP-eligible children, which statutory objectives should take precedence--those of Title XXI, which allow for family coverage only to the extent it does not exceed the cost of insuring eligible children, or section 1115 authority, which allows certain statutory provisions--such as cost-effectiveness tests--to be set aside. | In February 2006, Congress enacted the Deficit Reduction Act of 2005, which contained a provision prohibiting the use of SCHIP funds for adults without children. | |
| Congress may wish to consider requiring the Secretary of Health and Human Services to improve the public notification and input process at the federal level to ensure that beneficiaries and groups affected by Medicaid and SCHIP section 1115 demonstration waiver proposals receive opportunity to review and comment on proposals before they are approved. | In March 2010, the Patient Protection and Affordable Care Act was passed into law. As part of this act, Congress required the Secretary of HHS to develop regulations governing the review and approval of proposed Medicaid section 1115 demonstrations, as well as the renewal of ongoing demonstrations. Congress instructed the Secretary to ensure that these new regulations provide for a meaningful level of public input at both state and federal levels. On September 2, 2010, CMS officials told us they expect to publish the new regulations to the Federal Register on September 17, 2010. CMS officials also told us they structured the regulations to be responsive to GAO's longstanding concerns about the level of public input to the demonstration review process. CMS subsequently issued the new regulations and in the preamble, discussed GAO's reports and concerns. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Health and Human Services | To ensure that SCHIP funds are spent only for authorized purposes, the Secretary of Health and Human Services should amend the approval of Arizona's Health Insurance Flexibility and Accountability waiver to prevent future use of SCHIP funds on childless adults. |
The agency disagrees with the recommendation.
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| Department of Health and Human Services | To ensure that SCHIP funds are spent only for authorized purposes, the Secretary of Health and Human Services should deny any pending or future state proposals to spend SCHIP funds for this purpose. |
The agency disagrees with the recommendation.
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| Department of Health and Human Services |
Priority Rec.
To meet its fiduciary responsibility of ensuring that section 1115 waivers are budget neutral, the Secretary of Health and Human services should better ensure that valid methods are used to demonstrate budget neutrality, by developing and implementing consistent criteria for consideration of section 1115 demonstration waiver proposals. |
As of February 2024, the Department of Health and Human Services (HHS) had taken some action to address GAO's 2002 recommendation. In August 2018, HHS issued written guidance through a State Medicaid Directors Letter documenting four key changes it made in 2016 to its budget neutrality policy. These changes addressed some, but not all of the questionable methods GAO identified in its reports. To fully address this recommendation, HHS should also address these other questionable methods, such as setting demonstration spending limits based on hypothetical costs--what the state could have paid--rather than payments actually made by the state. GAO has found that the use of hypothetical costs has the potential to inflate spending limits and thus threaten the budget neutrality of demonstrations.
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| Department of Health and Human Services | To meet its fiduciary responsibility of ensuring that section 1115 waivers are budget neutral, the Secretary of Health and Human services should reconsider Utah and Illinois's budget neutrality justifications, in light of GAO's conclusions that certain costs were inappropriate or impermissible and, to the extent appropriate, adjust the limit on the federal government's financial obligation for these waivers. |
The agency disagrees with the recommendation.
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| Department of Health and Human Services | To improve the opportunity for public input into HHS consideration of state Medicaid and SCHIP program proposals that waive statutory requirements, the Secretary of Health and Human Services should provide for a federal public input process that includes, at a minimum, notice of pending section 1115 waiver proposals in the Federal Register and a 30-day comment period in line with HHS's 1994 policy. |
HHS has implemented a process for obtaining public input on Medicaid demonstrations.
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