The Centers for Medicare & Medicaid Services (CMS) published preliminary guidance in a June 11 State Medicaid Director Letter (SMDL) regarding the Working Families Tax Cuts legislation’s (WFTCL’s) budget neutrality requirements for Section 1115 demonstrations. The WFTCL codified in statute the longstanding regulatory requirement that Section 1115 demonstrations be budget neutral to the federal government, and instituted a new requirement for the CMS actuary to certify budget neutrality calculations beginning January 1, 2027.
The preliminary guidance outlines several significant changes to the existing budget neutrality framework, including how savings may be generated. Rather than imposing expenditure limits or budget neutrality caps, the guidance requires application of a much more rigorous prospective budget neutrality test. These changes have implications for new demonstrations as well as for the renewal and amendment of existing demonstrations, particularly those with initiatives related to health-related social needs, delivery system reforms and other provider payment initiatives, and uncompensated care pools.
CMS is currently developing a proposed rule that may incorporate, modify, or replace the policies described in the June guidance. If final budget neutrality regulations are not in effect by January 1, 2027, CMS has indicated that the policies outlined in the SMDL will govern until the rulemaking process is complete.
If you have any questions about how this preliminary guidance and the provisions of the WFTCL may impact you, please reach out to any Eyman Partners attorney to discuss.