To ameliorate the concerns about the rigidity of Medicaid and the increased long-term costs of expanding it, some contend that even if a state opts for expansion, it can still gain flexibility in how it administers its Medicaid program through special, negotiated “waivers.” Ideally, these waivers would help offset higher long- term costs.

A waiver, simply put, allows a state to not comply with underlying federal requirements of the statute. Under the Medicaid waiver provisions in Section 1115 of the Social Security Act, a state may ask for temporary exemptions from federal requirements in order to experiment with pilot programs and other novel methods of delivering Medicaid-funded services. Section 1115 waivers also allow states to spend Medicaid revenues in ways that federal rules would not normally permit.[16]

Although it is not a statutory requirement, the federal government has a long history of requiring Section 1115 demonstration projects to be “budget neutral.” That is, the cost of the demonstration project must not exceed the federal government’s expense of funding a state’s Medicaid program without such a waiver. The federal government enforces budget neutrality by capping the amount of federal funds made available to the state.[17] The state, therefore, is at risk for any costs in excess of the cap.

While a state Medicaid plan (and any amendments thereto) is legally enforceable in federal court, states have no legal authority to compel HHS to grant Medicaid waivers. Thus, waivers are exactly what the term implies — a voluntary suspension of one or more provisions of the contract by one party (in this case, HHS) for the benefit of the other party (in this case, a state government).

Just as it would be imprudent for anyone to enter into a legally enforceable written contract with the expectation that he can later persuade the other party to waive parts of the contract that are no longer preferable, likewise agreeing to expand Medicaid through an amendment to the state plan contract based upon the hopes of procuring future waiver concessions is ill-advised. Moreover, because of the legal and political landscape of expansion (mentioned above), a state’s position is unlikely to be made materially better by legislating reserve clauses claiming an ability to exit the expansion if a particular waiver is not granted.