On June 11, 2026, the Centers for Medicare and Medicaid Services (CMS) released a state Medicaid director’s letter on budget neutrality and section 1115 waivers. One-third of Medicaid spending runs through section 1115 waivers. HR 1 required that the CMS Chief Actuary certifies that Medicaid section 1115 waivers are budget neutral compared to the cost of running a Medicaid program absent the waiver.

CMS says in the letter, “Overall, CMS’s intended approach to implementing section 1115(g) is tied to CMS’s current policy goals: ideally, section 1115 demonstrations should deliver better outcomes and operate as, or more, efficiently than the existing Medicaid program. This includes an approach to budget neutrality that is expected to reduce overall expenditures in section 1115 demonstrations, thereby reducing federal outlays.” This appears to deviate from the existing approach of budget neutrality with a greater focus on achieving cost savings, but CMS notes there will be additional guidance, details and technical assistance prior to their change in approach which starts Jan 1, 2027.

LeadingAge is reviewing the letter in more detail and will provide more analysis as needed.