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Budget Neutrality

The Centers for Medicare & Medicaid Services (CMS) does not approve a Medicaid demonstration project under section 1115 of the Social Security Act unless the demonstration project is expected to be “budget neutral” to the federal government. A budget neutral demonstration project does not result in Medicaid costs to the federal government that are greater than what the federal government’s Medicaid costs would likely have been absent the demonstration. Budget neutrality helps to achieve a balance between CMS’s interest in preserving the fiscal integrity of the Medicaid program and its interest in facilitating state innovation through section 1115 demonstrations. CMS’s current approach to budget neutrality is detailed in demonstration approval letters, and the essential parameters of a demonstration’s budget neutrality test are specified in the demonstration’s special terms and conditions. In recent years, CMS has published additional resources, such as  State Medicaid Director Letters and slide decks, summarizing how CMS calculates and applies budget neutrality in demonstration approvals.

Resources

  • Budget Neutrality SMDL for Section 1115(a) Medicaid Demonstration Projects provides a summary of the current Medicaid section 1115 budget neutrality approach which has been in use since September 2022.
  • Updated Approach to Determining Budget Neutrality provides a PowerPoint slide deck summary of the current Medicaid section 1115 budget neutrality approach which has been in use since September 2022.  More detail is provided in Budget Neutrality SMDL for Section 1115(a) Medicaid Demonstration Projects.
  • 2018 BN SMDL provides the Medicaid section 1115 budget neutrality approach used prior to September 2022 and back to 2016.
  • Budget Neutrality Monitoring Template provides the Medicaid section 1115 budget neutrality monitoring workbook template for states to submit their actual expenditure experience relative to their budget neutrality ceilings as required by their demonstration Special terms and conditions.
  • This Quick Reference summarizes the tasks that a State User performs in 1115 PMDA to support usage of Budget Neutrality Monitoring Template. This Quick Reference does not reflect all tasks that a State User may perform in PMDA to submit the state’s actual expenditure experience relative to its budget neutrality ceilings as required by the state’s demonstration special terms and conditions.