CMS Updates Budget Neutrality Rules for Medicaid Section 1115 Demonstrations

The Centers for Medicare & Medicaid Services (CMS) is updating its approach to budget neutrality in Medicaid Section 1115 demonstrations, pivotal for federal Medicaid funding. These demonstrations permit states to explore innovative healthcare delivery methods. CMS's updated guidance aims to enhance fiscal accountability and protect federal spending.

CMS plans to implement a new rule ensuring precise oversight and consistent budget neutrality standards for these demonstrations. This initiative supports states in managing program enhancements while preserving financial integrity. CMS Administrator Dr. Mehmet Oz highlighted the necessity of balancing state innovation with taxpayer accountability, ensuring that new initiatives do not exceed current expenditures and maintain or improve health outcomes.

As part of the Working Families Tax Cut legislation, CMS will require a budget neutrality certification from the CMS Chief Actuary starting January 1, 2027, before approving new or renewed section 1115 demonstrations. This measure ensures federal spending aligns with or remains below existing Medicaid program costs, excluding demonstration projects. CMS has issued early guidance to help states adapt to these anticipated changes, supporting state preparations until the final rule takes effect, which aligns with statutory requirements for the Actuary’s certification post-2027.