The Centers for Medicare & Medicaid Services (CMS) announced it will require states to obtain certification from the CMS Chief Actuary that Medicaid waiver proposals will not increase federal spending, implementing a provision from Section 71118 of the Working Families Tax Cut legislation. The new rule, set to take effect January 1, 2027, means states cannot receive approval or renewal of Medicaid waivers unless they are certified as budget neutral compared to standard Medicaid operations.
Explainer The Evolving Landscape of American Health Care Legislation
The change has sparked debate over whether the policy will safeguard taxpayer dollars or threaten Medicaid coverage and benefits.
The move follows longstanding concerns about the cost and oversight of Medicaid demonstration projects, which account for nearly one-third of federal Medicaid spending. CMS Administrator Dr. Mehmet Oz said the new standards are intended to strengthen accountability and fiscal integrity, stating, “The budget neutrality requirements we plan to propose are designed to ensure that testing new ideas doesn’t cost taxpayers more than current approaches, while improving health outcomes for the people we serve.”
New Certification Requirement
Under the new guidance, states must receive certification from the CMS Chief Actuary that any Section 1115 Medicaid demonstration project will not increase federal spending. CMS stated it will not approve new demonstrations, renewals, or amendments without this certification after January 1, 2027. The agency said the guidance is being published early to help states plan for the transition and ensure compliance with the law.
Section 71118, enacted as part of last year’s budget reconciliation law, directs the Secretary of Health and Human Services to deny any Medicaid waiver application or renewal lacking the required certification. The provision was designed to address concerns that some states have used waivers to secure additional federal funds beyond what standard Medicaid rules would allow.
Reactions From Supporters and Critics
Supporters of the new requirement argue it will prevent states from exploiting the waiver process to obtain excess federal dollars. Chris Jacobs, founder of Juniper Research Group, said the policy is necessary to stop “questionable cash grabs from the federal government.” He pointed to a 2014 Government Accountability Office report that found $778 million in excess spending approved for an Arkansas Medicaid waiver, calling it an example of how waivers have been “ripe for abuse and politicization.”
"The budget neutrality requirements we plan to propose are designed to ensure that testing new ideas doesn’t cost taxpayers more than current approaches, while improving health outcomes for the people we serve."
— Dr. Mehmet Oz, CMS Administrator
Critics, including experts quoted in a recent KFF Health News article, warn that the new rules could create additional bureaucratic hurdles for states, potentially leading to fewer benefits or reduced eligibility for Medicaid. They argue that longstanding waivers, which have been renewed multiple times, are now at risk, and that the loss of these waivers could threaten funding hospitals rely on to cover uninsured patients and improve community care.
State-Level Impact and Political Debate
Arkansas officials, under Republican Gov. Sarah Huckabee Sanders, are working to modify the state’s Medicaid waiver to ensure compliance with the new federal requirements. The effort follows earlier controversy over a waiver approved during the administration of former Gov. Mike Beebe, which the GAO found resulted in significant excess federal spending. The CMS guidance notes that other states, including those with Democratic leadership, will face similar challenges as their waivers come up for renewal.
While critics claim the policy is a covert attempt to cut Medicaid expansion and restrict access, supporters counter that the new rules simply enforce fiscal discipline and prevent improper use of federal funds. CMS has stated it intends to work closely with states to make the transition as smooth as possible, and has not yet responded to specific criticisms from advocacy groups or state officials opposing the change.
CMS expects to begin applying the new approach as described in its guidance, and will propose a formal rule to implement the budget neutrality certification requirement in the coming months.
