WASHINGTON — The Centers for Medicare & Medicaid Services announced June 11, 2026, a sweeping overhaul of how it evaluates budget neutrality for Medicaid Section 1115 demonstration waivers, requiring independent actuarial certification before any new, renewed, or amended waiver is approved — a change the agency described as a “bold new approach to stewarding Medicaid demonstration project spending.”
The policy shift takes effect Jan. 1, 2027, and applies to demonstrations that together channel nearly one-third of all federal Medicaid dollars, according to CMS.
What Section 1115 Waivers Are
Section 1115 of the Social Security Act gives the Secretary of Health and Human Services authority to waive standard Medicaid rules, allowing states to “design and test experimental approaches to Medicaid, including modifying eligibility, benefits, delivery systems, and coverage, in ways not otherwise permitted under standard Medicaid authority,” according to the agency.
As of early 2026, more than 40 states operated active Section 1115 demonstrations covering programs ranging from Medicaid managed care and home- and community-based services to housing assistance and nutrition supports. The Kaiser Family Foundation’s Medicaid Waiver Tracker reported 25 approved waivers specifically addressing social determinants of health, with six more pending.
What Is Changing
Under the new framework, CMS will require that the agency’s Chief Actuary independently certify — before approval — that any proposed demonstration, renewal, or amendment would not increase federal Medicaid expenditures relative to what those expenditures would be without the waiver.
The certification mandate becomes binding on Jan. 1, 2027, but CMS said it intends to begin applying the new standards immediately in advance of a forthcoming proposed rule.
The requirement stems from Section 71118 of the July 2025 reconciliation legislation — known as the Working Families Tax Cut Act — which for the first time codified budget neutrality as a statutory obligation rather than an executive policy. The requirement had previously been enforced through agency guidance dating to the Carter administration.
CMS also expanded the scope of costs counted toward budget neutrality. Administrative expenses incurred as a result of a demonstration — previously excluded from these calculations — will now be factored in under the new approach.
“CMS interprets the language in section 1115(g) to mean that all expenditures under the demonstration, including administrative costs resulting from the demonstration, need to be considered when determining budget neutrality,” the agency stated in its State Medicaid Director Letter accompanying the announcement.
State Flexibility Under Scrutiny
Section 1115 demonstrations have long served as laboratories for Medicaid innovation. States have used the authority to test programs covering housing supports, medically tailored meals, and medical respite care — services not traditionally covered under standard Medicaid benefits.
Under the tightened standard, states seeking waiver approval must now demonstrate that their proposed programs would not increase per-enrollee federal costs and must account for administrative overhead — a bar that analysts say could constrain states’ ability to expand eligibility or add new benefits.
Researchers at the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School warned in February 2026 that codifying the budget neutrality requirement in statute “may push Medicaid policymaking out or down — out of HHS, down to states,” potentially limiting health care access improvements for lower-income Americans.
The same analysis noted that converting what was an executive branch policy into a statutory mandate shifts financial risk from the federal government — which has greater fiscal capacity — to individual states.
Home- and Community-Based Services in Focus
Medicaid-funded home- and community-based services programs face particular scrutiny under the new standards. HCBS has grown from 1.1% of total Medicaid long-term services and supports spending in 1981 to 64.6% by 2022, according to federal data. Despite that growth, access remains uneven: approximately 710,000 individuals were on HCBS waiver waiting lists across 40 states in 2024.
States that rely on Section 1115 demonstrations to expand HCBS eligibility beyond standard Medicaid rules — including personal care, attendant services, and home health — will be required to satisfy the Chief Actuary’s certification standard before any renewal is granted.
CMS said it plans to issue a proposed rule detailing the full scope of the changes, though no timeline for that rulemaking was announced.
Why This Matters for Home Care
Medicaid-funded home- and community-based services are a primary pathway to care for seniors and individuals with disabilities who wish to remain at home rather than enter nursing facilities. If tighter budget neutrality standards slow or limit states’ ability to renew or expand HCBS waivers, families on waiting lists may face longer delays in accessing publicly funded home health aides, personal care attendants, and supportive services.
For families planning ahead — or those navigating care needs outside of Medicaid coverage — understanding private equipment options is part of a comprehensive home care plan. SonderCare offers home hospital beds designed for aging in place at sondercare.com/beds/.
Sources: CMS, June 11, 2026; American Hospital Association, June 11, 2026; Petrie-Flom Center at Harvard Law School, February 2026; Kaiser Family Foundation Medicaid Waiver Tracker; Medicaid.gov
