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. Section 71118 of Public Law 119-21of the Working Families Tax Cut (WFTC) legislation adds budget neutrality for Medicaid section 1115 demonstration projects as a new statutory requirement at subsection 1115(g) of the Social Security Act (the Act). Beginning January 1, 2027, the Secretary may not approve an application for (or an amendment or renewal of) a Medicaid section 1115 demonstration project unless the Chief Actuary of CMS certifies that such project is not expected to result in an increase in the amount of federal expenditures compared to the amount that such expenditures would otherwise be in the absence of such project. Section 1115(g) of the Act is applicable to Medicaid section 1115 demonstration projects in all states, the District of Columbia, and all territories; this section is not applicable to Children’s Health Insurance Program (CHIP) section 1115 demonstration projects.  

To aid state planning efforts, CMS is publishing guidance to provide states with early notice regarding the changes to budget neutrality that CMS intends to propose to implement this new requirement. CMS expects to begin applying the approach described in this guidance to new demonstration, amendment, and renewal approvals until a final rule is effective.

Over the years, CMS has published additional resources on budget neutrality, such as State Medicaid Director Letters and slide decks that are listed below.  Current demonstration special terms and conditions will stay in effect until the expiration, amendment, or renewal of their currently approved demonstration. 

Resources

• Budget Neutrality and Certification by the Chief Actuary of CMS for Section 1115 Medicaid Demonstration Projects provides a summary of the new Medicaid section 1115 budget neutrality approach in alignment with section 71118 of the WFTC legislation. 
• Budget Neutrality SMDL for Section 1115(a) Medicaid Demonstration Projects provides a summary of the 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 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.