GAO Report on 1115 Waivers

Executive Summary

This GAO report discusses the role and ability of HHS to effectively monitor, review, approve, and seek public input on 1115 waivers as states increasingly rely on this program to deliver care.

The Honorable Max Baucus 
The Honorable Charles Grassley 
Ranking Minority Member 
Committee on Finance 
United States Senate 
States provide health care coverage to about 40 million low-income uninsured adults and children largely through two federal-state programs?Medicaid and the State Children?s Health Insurance Program (SCHIP). Medicaid generally covers low-income families and elderly and disabled individuals, while SCHIP provides health coverage to children in families whose incomes, while low, are above Medicaid?s eligibility requirements. To receive federal funding, which covered on average about 57 percent of Medicaid expenditures and 72 percent of SCHIP expenditures in 2001, states must meet certain statutory requirements including providing a certain level 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 that are likely to promote program objectives. As part of their responsibility to protect the fiscal integrity of the programs, traditionally, HHS and the Office of Management and Budget (OMB) have had a policy that all approved waiver projects be ?budget neutral? for the federal government?that is, the proposed project cannot result in federal expenditures that are higher than they would have been without the project. 
Within the past year, HHS indicated that it would allow states greater latitude in using section 1115 waivers to modify the Medicaid and SCHIP programs and would expedite its consideration of state proposals. Specifically, the department announced two new section 1115 initiatives to expand health coverage to uninsured populations and to provide prescription drug coverage to low-income seniors using section 1115 waivers. One initiative, the Health Insurance Flexibility and Accountability Initiative (HIFA), focuses on proposals for covering more uninsured people while at the same time not raising program costs. Another initiative, called Pharmacy Plus, encourages states to expand access to prescription drug coverage to low-income seniors not eligible for Medicaid, again while not raising program costs. 

The increased emphasis on using section 1115 waivers and these two new initiatives have raised concerns about whether HHS can both expedite its approval process and at the same time provide adequate review and oversight of waiver proposals that could change how, and to whom, program services are delivered. The expedited reviews have also raised concerns about the adequacy of the public?s ability to review and comment on the proposed changes. At your request, we reviewed section 1115 waiver requests involving expanding coverage to the uninsured or providing seniors drug coverage that HHS has received since the first of these initiatives was put into effect in August 2001. Specifically, we examined three questions regarding the section 1115 waiver proposals submitted and approved in line with HHS?s goals of expanding health coverage and providing prescription drug benefits to low-income elderly: 
1. What types of waiver proposals have been submitted and approved? 
2. Has HHS ensured that the approved waivers are consistent with the goals and fiscal integrity of Medicaid and SCHIP? 
3. To what extent has there been opportunity for public input in the expedited process? 
Our work is based on a review and analysis of section 1115 waiver proposals for new demonstration projects submitted since August 2001 and related to expanding insurance or providing pharmacy coverage in line with the two new initiatives. We analyzed HHS data on section 1115 waiver proposals for new programs submitted from August 2001 to May 2002, and documented the type, number, and outcome of these proposals. For the four approved waivers, we reviewed waiver proposals, HHS decision memorandums and approval letters, approved waiver applications, waiver terms and conditions, and operational protocols when available, and documentation of the states? public process and budget neutrality justifications. We also discussed these initiatives and waiver approvals with officials at HHS, the Centers for Medicare and Medicaid Services (CMS, the agency within HHS with the lead role in receiving and reviewing the applications),1  OMB, and relevant state agencies. To obtain information on the opportunity for public input to the waiver-approval processes and any related research studies, we also contacted several health research and advocacy organizations including the Center for Budget and Policy Priorities, the National Health Law Program, and the Kaiser Commission on Medicaid and the Uninsured. We examined the statutory provisions governing the Medicaid and SCHIP programs and the section 1115 waiver authority, and obtained HHS?s opinion on a legal question through written correspondence. Finally, we relied upon our past reports and testimonies on the approval of section 1115 waivers and other issues.2 We conducted our work from December 2001 through June 2002 in accordance with generally accepted government auditing standards. 

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