Medicaid Managed Care - U.S. Senate Special Committee on Aging

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Section 1115 Demonstration Waivers. Section 1115(a) of the Social Security Act allows the
Secretary of Health and Human Services to approve demonstration projects that will help promote the
goals of the <strong>Medicaid</strong> program. The Secretary has broad discretion in approving these demonstrations
and has selectively approved such proposals. These demonstrations are for a limited time, usually three
to five years. They generally have not been renewed by the Secretary, but the Congress has extended
some legislatively.
The intent of Section 1115 demonstration authority is to test unique and innovative approaches to the
delivery and financing of health care. Under a demonstration grant, the Secretary can waive many
provisions of <strong>Medicaid</strong> law.' 0 All other sections of the <strong>Medicaid</strong> law, except those explicitly waived,
still apply to demonstrations. Demonstrations require research and evaluation components." Although
not a requirement in law, the Administration has a policy of only approving proposals that are budget
neutral over the life of the demonstration.
In response to state officials' criticisms of the lack of flexibility in how <strong>Medicaid</strong> was run, the
Administration has expanded use of this waiver authority. States use II 15 waivers to enroll <strong>Medicaid</strong>
beneficiaries in prepaid managed care and to gain flexibility in meeting federal <strong>Medicaid</strong> program
requirements. In addition, some states have sought to use 1115 waivers to expand <strong>Medicaid</strong> eligibility
for acute care services to low-income, uninsured persons; but for the most part, pursuit of this goal has
stalled.
As of December 1996, 17 states had been granted Section 1115 waivers. Two states have had their
waivers denied. Montana's proposal was denied outright, while Louisiana's was turned down
specifically because of the financing mechanism. Eight more states have applications awaiting
decisions from HCFA (Kaiser Commission 1996c) (Figure 20-5).
Types of <strong>Managed</strong>-<strong>Care</strong> Arrangements
<strong>Medicaid</strong> managed-care arrangements vary widely in the amount of utilization management involved
and the degree to which plans are at risk. HCFA classifies arrangements into four categories: HMOs,
prepaid health plans (PHPs), health insuring organizations (HIOs), and PCCM arrangements. For
most purposes, however, it is more useful to distinguish between entities at full risk for a
comprehensive range of services (generally HMOs, HIOs, and some PHPs); entities at risk for a more
limited range of services (some PHPs); and programs that operate on a fee-for-service basis (PCCM
arrangements). The analysis presented in the next section makes use of this latter classification.
' One requirement that can be waived is the enrollment composition rule requiring that at least 25 percent of a plan's
enrollees be from other than the <strong>Medicaid</strong> and Medicare programs. The Commission has previously recommended that this
rule should be dropped for those states that participate in a quality assurance program (the Health <strong>Care</strong> Quality Improvement
System) (PPRC 1993). See also Chapter 7 for a recommendation on Medicare's enrollment composition rule.
Some evaluation research is under way. Early results from one study have been published (Wooldridge et al. 1997).
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