Medicaid and SCHIP Section 1115 Research and Demonstration Waivers Page: 3 of 6

                                
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generally means that the state will finance changes to its Medicaid program using SCHIP
funds.
In 1994, the Secretary issued a public notice,3 describing the principles under which
HHS would evaluate and approve (or disapprove) applications for Section 1115 waivers,
and the procedures states were expected to follow for public involvement in the
development of the demonstration project. In this notice the Secretary described a budget
neutrality requirement for Section 1115 waivers, general requirements for waiver
evaluations by states, and other policies and procedures. The budget neutrality
requirement means that estimates of spending under the waiver can not exceed amounts
that would otherwise have been spent under the program without the waiver. For both the
Medicaid and SCHIP programs, Section 1115 waivers are typically authorized for a
period of up to five years.4 CMS is responsible for evaluations and reporting
requirements associated with the waiver programs for the protection of recipients as well
as program integrity.
At the start of the SCHIP program, the Secretary released guidance stating that CMS
would not entertain Section 1115 waiver applications for SCHIP until states had a chance
to get their programs up and running. On July 31, 2000, the Secretary sent a letter to state
health officials outlining the circumstances under which the Secretary would grant a
Section 1115 waiver under SCHIP.5 The first SCHIP waivers were approved in January
of 2001. As of January 16, 2004, CMS had approved 14 SCHIP waivers. Three of the
14 are SCHIP-only, HIFA waivers, and (as listed above) five of the 14 are
Medicaid/SCHIP combined waivers.6 Most of the states with approved SCHIP waivers
will extend coverage to include one or more categories of adults, typically parents of
Medicaid /SCHIP children, caretaker relatives, legal guardians, and/or pregnant women.
Four states, (Arizona, Illinois, New Mexico and Oregon) have approval to use SCHIP
funds to cover childless adults under their HIFA demonstrations.7 Michigan's SCHIP
Section 1115 waiver also allows for such coverage.
Medicaid Provisions on Demonstration Waivers
While Section 1115 is explicit about provisions in Medicaid law that may be waived
in conducting research and demonstration projects, other provisions in Medicaid specify
limitations or restrictions on how a state may operate a waiver program. Some of these
additional waiver-related provisions are:
3 Medicaid Program; Demonstration Proposals Pursuant to Section 1115(a) of the Social Security
Act; Policies and Procedures, 59 Federal Register 49249, Sept. 27, 1994.
4 Guidance on Section 1115 waivers at [http://www.cms.hhs.gov/medicaid/1115/default.asp].
s Health Care Financing Administration, Letter to State Health Officials, July 31, 2000.
6 CMS's website, [http://www.cms.hhs.gov/medicaid/ll15/statesum.pdf], lists comprehensive
state health reform demonstration waivers and shows their approval and implementation status.
7 Letter to Senators Grassley and Baucus, U.S. General Accounting Office, SCHIP: HHS
Continues to Approve Waivers That Are Inconsistent with Program Goals, Jan. 5, 2004, and
project descriptions as listed on CMS' website at http://www.cms.gov/schip/ll15waiv.pdf.