Chairman McIntosh, Chairman Horn and distinguished members of the Subcommittees, thank
you for the opportunity to discuss the process used by the Department of Health and Human
Services to consider waivers of Federal law and regulations. We are pleased that your
Subcommittees are interested in hearing about how State requests for statutory waivers are
reviewed, and thank you for your leadership in advancing effective government.
The waiver of Federal law and regulations has been an important component of this Administrations
efforts to ensure both State flexibility and accountability. As you know, the Secretary has the authority in certain circumstances to waive Federal
statutory provisions or departmental regulations. This authority allows the Secretary to
enable States to experiment and conduct research by demonstrating innovative programs or
policies. At the same time, the process enables the Secretary to evaluate the waivers
rigorously, while stewarding Federal expenditures through the mechanism of budget
The approval of an unprecedented number of waiver requests by this Administration has
provided great opportunities for the States to be laboratories for exciting new health and
human service ideas. We believe that the lessons learned from these program waivers and
research and demonstration waivers have been constructive and we are looking forward to
continuing to work with the States to use waiver authority to help them achieve our common
program goals. In the Administration for Children and Families (ACF) we have learned that
the most effective ways to move welfare recipients into work is to emphasize "work
first" approaches in implementing welfare reform. This knowledge helped shape our
national perspective on welfare reform. In Medicaid, our extensive experience with waivers
on mandatory enrollment in managed care programs led to a change in national policy
allowing mandatory enrollment without the need for a waiver. These are just two examples
of how State waivers and evaluations have led to changes at the national level.
Although the waiver requests we have granted have had a significant role in shaping our
program strategies for addressing the needs of low-income children and families, the
process of granting waivers has certain serious responsibilities attached to it. They
include ensuring that flexibility and the opportunity to develop new knowledge do not
hamper accountability for both program purposes and funding. Cost neutrality is a key
concern, as well as acquiring through valid research the means to pinpoint the success or
lack of success in approaches. Finally, we must never lose sight of this Departments
responsibility to families who depend on our programs for assistance, and on Medicaid for
health coverage and who deserve to be protected when they become subject to
Use of an effective waiver process is a critical policy tool. The Department has
procedures and policies in place to assure waivers are granted efficiently while
maintaining the fiscal and programmatic integrity of various programs. It is critical to
remember that HHS has a fiduciary and programmatic responsibility to evaluate each waiver
separately on its merits. This is important for three reasons. First, Medicaid, child
welfare services, and child support enforcement programs are different in each State. It
is therefore often difficult to determine the effect that the same or similar policies
would have in each State. For example, States proposals usually have different goals
that translate into variations in eligibility definitions, benefit coverage, service
delivery systems and cost. Second, a waiver program that is budget neutral or cost
effective in one particular State may not be in another. Therefore, issues of budget
neutrality or cost-effectiveness must be resolved separately for each State. Finally, as
we noted, our paramount concern is assuring that we focus on each waiver separately to
assure we protect all vulnerable populations. Waivers that change benefits or make large
programmatic changes must be carefully assessed to assure families and children are
protected. Given the range of possibilities in both the specifics of waiver proposals and
the circumstances of different States, it is very difficult to make generalizations about
existing waivers and important to assess each request individually. Time limits on the
review of Section 1115 demonstration waiver requests would adversely affect our ability to
maintain the fiscal and programmatic integrity of the Medicaid program by reducing the
Secretarys and States ability to negotiate the details of the waiver request.
Overview of Waivers
The Administration is committed to using the Secretary's waiver authority to:
- Increase State flexibility.
- Test innovative service delivery options.
- Expand health care coverage to populations currently uninsured, within the limits of
Several sections of the Social Security Act give the Secretary authority to grant
waivers of certain statutory provisions in ACF programs and in the Medicaid program. The
most commonly used authorities are:
- Medicaid, Welfare, and Child Support Research and Demonstration Waivers: Section
1115 of the Social Security Act (SSA) allows approval of experimental, pilot, or
demonstration projects to promote the objectives of various programs authorized in the
SSA, including Medicaid, the old AFDC program, and the child support enforcement program.
These demonstration projects, which are referred to as "research and demonstration
waivers," often involve expansions of eligibility, and are therefore subject to
strict budget neutrality standards, in which the overall cost to the Federal government
must not exceed what would have been spent in the absence of the waivers granted.
- Child Welfare Waivers: Section 1130 authorizes the Secretary to approve up to 10
child welfare demonstration projects per year. These projects involve the waiver of
provisions of the Title IV-B and Title IV-E child welfare, foster care and adoption
assistance programs and related regulations, while preserving the eligibility and
procedural protections of the child and family. These projects have cost neutrality
provisions and provide for the rigorous evaluation of the project's
results. Twenty-five waivers
have been granted under this authority since 1994.
- Refugee Assistance Waivers: The refugee resettlement waiver authority is found in
the regulations at 45 CFR 400.300. States most frequently request a waiver of regulations
that limit the use of funding for social services and targeted assistance to refugees, who
have been in the U.S. for less than five years. Seven waivers have been granted under this
authority since 1997.
- Medicaid Program Waivers: Section 1915(b) of the Social Security Act provides a much
more narrow authority than the Section 1115 research and demonstration waivers discussed
above. These program waivers allow States to waive statewideness, comparability of
services, and beneficiary freedom of choice with respect to Medicaid providers, so long as
the projects also meet a test of cost-effectiveness. The cost of Medicaid managed care
waiver projects must not exceed the cost of Medicaid fee-for-service.
- Medicaid Home-and Community-Based Waivers: Section 1915 (c) of the Social Security
Act allows States to request waivers of certain Federal requirements to
allow development of home and community-based treatment alternatives to institutional care
so long as these alternatives cost no more than it would to provide the same care in an
Process for Waiver Review and Approval
The Administration has made State flexibility a high priority and has worked
extensively with States to create agreements on waiver process and procedures. In an
attempt to streamline the process and increase State flexibility, the Department and the
National Governors Association (NGA) agreed on policies and procedures for reviewing
Section 1115 research and demonstration waivers in 1994. The purpose of this agreement was
to facilitate review at a time when there was increasing demand to process waiver
requests. The agreement encourages States to develop research and demonstration projects.
In the General Considerations portion of that agreement, the Department and NGA
agreed that, "to facilitate the testing of new policy approaches to social problems,
the Department will:
- Work with
States to develop research and demonstrations in areas consistent with the Department's
proposals that test alternatives that diverge from that policy direction; and
- Consider, as a
criterion for approval, a State's ability to implement the research or demonstration
This document also laid out principles related to evaluation, duration, cost
neutrality, and State notice procedures. Copies of this agreement are appended to my
testimony as Tab A.
Our commitment to increasing State flexibility has meant that States have had the
authority to test innovative practices in both their Medicaid and ACF programs on a scale
never before permitted by any other administration. Because of the broad scope of
activities proposed in Section 1115 research and demonstration waivers, each waiver must
be carefully reviewed in each agency.
Prior to the enactment of the Personal Responsibility and Work Opportunity
Reconciliation Act (PRWORA), HHS used waiver authority extensively to provide States with
flexibility in running their welfare programs. On average, it used to take the Department
four months from receipt to approval of a welfare waiver and many requests were approved
in two months. Waivers were required to be cost neutral over the life of the demonstration
and an experimental design was used for costs and evaluation.
In 1995, with the goal of shortening the review time, ACF developed and announced an
expedited 30-day review and approval process for proposals for waivers that addressed five
specified strategies for helping welfare recipients become self-sufficient: 1) work
requirements, 2) time limits for those who can work, 3) requirements for minor parents, 4)
improving payment of child support, and 5) subsidized employment programs. Several States
applied under this process. However, applicant States typically sought approval of a wide
array of provisions extending beyond those that could not be handled under the expedited
process effect on time. Extending expedited review beyond these five areas would have been
detrimental to maintaining the fiscal and programmatic integrity of the program. After
States implemented Temporary Assistance for Needy Families (TANF), there was less of a
need for welfare waivers due to the vast flexibility provided in the welfare reform
legislation. Copies of the expedited guidance are appended to my testimony as Tab B.
For both welfare reform and child support waivers, the ACF process includes:
- technical assistance prior to formal submission
- provision for adequate State public notice of pending waiver requests
- review of applications by analysts focusing on costs and programmatic impact
- comments consolidated into State issue papers including discussion of cost neutrality
- negotiation of issues and provisions
- issuance of approvals/denials
The process for child welfare waivers is similar to the welfare reform process.
However, as reflected in the statute's limitation on the number of projects that may be approved (ten per year)
and the strict requirements in the law about the need for designs that assure cost
neutrality and a rigorous evaluation of effectiveness, they are very focused on learning
about new cost-effective approaches that contribute to the improvement of child welfare
services. For this reason, the process includes a preference for policies and service
program alternatives that differ from other demonstration projects. Additionally,
priorities identified in the statute, such as kinship care, overcoming barriers to
adoption and addressing parental substance abuse, as well as other major issues in the
field, are identified in the announcements for the demonstrations. Approvals generally
take about four months.
In the case of refugee resettlement waivers, ACF's Office of Refugee Resettlement is
responsible for the review process. All such waiver requests are reviewed to determine
whether the waiver will advance the primary goal of the refugee program, which is to
achieve economic self-sufficiency and social adjustment within the shortest possible time
after arrival. In most instances, a decision to approve or disapprove is made within 60
days of receipt of the request.
In HCFA, the review process differs depending on the type of waiver requested.
Approvals and renewals for Section 1915 program and home and community-based waivers are
time-limited. Section 1915(f) of the SSA specifies time limits for approving these
waivers. The Secretary must either deny the waiver request or ask for additional
information within 90 days of the date of the State's submission of a waiver application.
During this time frame, a review team must review the details of the waivers requested,
and provide feedback and follow-up questions to the State. When these questions are sent
to the State, the 90-day clock stops. Upon receipt of the additional information, the
clock restarts, terms and conditions are negotiated, and a waiver is deemed granted on the
90th day, unless the Secretary denies the waiver request before the 90th
Both types of waivers contain statutory cost effectiveness requirements. Program
waivers must demonstrate that the cost of the care system proposed under the program
waiver does not exceed what Medicaid costs (combined State and Federal) would have been in
the absence of the waiver. These waivers are approved for two years and may be renewed for
subsequent two-year periods. Under home and community-based waivers, the cost of the care
provided in the community must not exceed the cost of caring for the same beneficiary in
an institutional setting.
Section 1115 Demonstration waivers are generally granted for five years and may be
extended for an additional three years. Approval time has varied from three months to two
years. As with ACF research and demonstration waivers, various groups within the
Administration work as a team to evaluate research and demonstration proposals. There is
not a 90-day review clock for the research and demonstration waiver proposals, but the
review process is similar to the Section 1915, process in that a Departmental team reviews
the proposal, initiates discussions with the State, and follows many of the steps
discussed above. The Administration and the NGA agreed that there would be a cost
neutrality component to Section 1115 research and demonstration projects in the 1994
agreement. This means that the financing for health care reform demonstrations under
Section 1115 is calculated by comparing the Federal cost under the demonstration to what
Federal costs would have been had there been no demonstration. This requires establishing
a base year of costs (usually the last pre-demonstration year) and agreeing to a
projection methodology to estimate how much costs will increase over the duration of the
project. However for research and demonstration waivers budget neutrality establishes a
cap on Federal expenditures, whereas in 1915(b) waivers, the test is whether, in the
Secretary's estimation, the managed care program will save money.
Overall Review Process
Research and demonstration waiver requests often raise complex issues that require time
and attention to evaluate fully. While the goal of waiver requests is to try different
approaches to program administration, all of this must be done in the context of our need
to protect vulnerable families while meeting our fiduciary responsibilities. The
complexity of many welfare reform research and demonstration waiver proposals is a case in
point. Some of these proposals contained extraordinary policy, legal, or program
evaluation issues and took long periods of time to resolve. As I have noted, even in the
case of the expedited review process for AFDC waivers that was announced in 1995, many
provisions in the packages of reforms proposed by the States fell outside of those covered
by the 30-day approval time frame making the process of limited use.
We have upheld the President's commitment to expeditious review of Medicaid and ACF-related proposals.
However, new policy initiatives may require development of new decision criteria to
evaluate the proposal. For example, as you know, there has been heightened concern in the
Administration -- concern which we know is shared in the Congress and in the advocacy
community -- about children with special health care needs in capitated, managed care
programs. Policy concerns such as these can delay approvals or renewals of State programs,
as we review the plans to ensure that vulnerable populations are protected. Finally, our
two decades of experience with managed care waivers has made the Department better able to
work with States to ensure that they are aware of contract requirements for managed care
organizations or necessary protections for special needs populations.
Furthermore, we have taken steps to expedite our existing processes. In 1995, HCFA
published the Proposal Guide for Section 1115 State Health Care Reform Demonstrations to
inform States of guidelines for approval of Section 1115 research and demonstration
proposals. In addition, this year, we also revised our pre-print application for 1915 (b)
program waivers with the hope of speeding the approval process. The 1915 (c) home and
community-based waiver application was also revised at this time. In conjunction with the
revisions to the pre-print application, we also convened a conference with State agency
representatives to familiarize them with the new application. A copy of this guide is
appended as Tab C.
Summary of Waivers Granted
ACF Waivers Pre-Welfare Reform
Prior to passage of the 1996 welfare reform law, HHS worked with almost all States to
help them reform their welfare systems through the Section 1115 waiver process. Since the
beginning of the Clinton Administration, we have approved 78 welfare reform demonstrations
in 43 States. The details of each waiver were unique but major themes across these
- Linking Personal Responsibility to Benefits - Demonstrations in Michigan,
Oregon, Utah and other States included changes to the exemption criteria for the 1988
Family Support Act's Job Opportunities and Basic Skills Training (JOBS) program -- most
often requiring more recipients to engage in work activities. A number of demonstrations
such as those in Delaware, New Hampshire and Virginia included changes in the sanctioning
rules. Additionally, Georgia, Indiana, Maryland, Ohio and other States sought authority to
link benefit receipt to personal responsibility in additional areas such as school
attendance for dependent children, receipt of appropriate immunizations or health
screenings for young children and strengthened requirements for cooperation with child
support enforcement. Many of the demonstrations in this category--over 20--were aimed at
strengthening child support enforcement.
- Making Work Pay - A very common approach in many State efforts, including such States as
Connecticut, Illinois, Minnesota, and Vermont, was to increase the amount of income an
individual can earn and still retain some welfare benefit. In addition, State
demonstration projects increased the resource/asset limits for welfare families and
included waivers that increased vehicle asset limits, allowing families to own reliable
automobiles to use for work and other family needs. A number of these demonstrations
included extensions or expansions of transitional Medicaid and child care benefits.
- Time Limits - To promote personal responsibility, waivers allowing for various time limits on the
receipt of cash assistance were approved in 23 of the welfare reform demonstration
projects such as in Connecticut, Florida, and Virginia.
After enactment of welfare reform, only a small number of pending welfare waivers of
limited scope were granted under the provisions of Section 415. The 1996 statute broadened
States flexibility so that most States did not require waivers for their programs.
The waivers that were granted gave States greater flexibility in assuring that families
obtain needed medical assistance and in simplifying the administrative burden of providing
medical assistance to qualified low-income families. They also included a waiver to allow
passing through child support collections to welfare families.
The child support waivers that continue to be granted under Section 1115 cover such
areas as waiving the application and fee for non-welfare cases in order to expedite
services; a fatherhood project to help fathers increase their incomes and child support
compliance; and a project to test several initiatives such as evaluating paternity
acknowledgment practices. Four waivers, in addition to the child support related waivers
in welfare reform, have been granted under this authority.
Child welfare waiver demonstration projects test a wide range of new approaches to the
delivery of child welfare services that will provide valuable knowledge to improve the
delivery and effectiveness of services to vulnerable children and families. Key
requirements of the demonstrations are that they may not waive legal protections for
children in foster care and their families and that they may not impair a child or family's eligibility for benefits
under Title IV-E. The projects must also be cost-neutral to the Federal government and
must provide for an evaluation by an independent contractor, using a scientifically
rigorous evaluation design, such as random assignment. These waivers are generally
processed within four months.
The waivers provide States with greater flexibility to use Title IV-E funds for
services that can facilitate safety and permanence for children. They are intended to
further the purpose of parts B and E of Title IV to achieve positive results such as:
assuring the safety and protection of children; enhancing and enriching child development;
providing permanency for children; strengthening family functioning and averting family
crises; providing early intervention to avoid out-of-home placement; reducing the time
that children are separated from their families; speeding the process by which children
unable to return home are adopted; or preparing young people in foster care for
independent living. Among the projects approved to-date are capitated payment
models, in which an array of services is provided under a fixed-price arrangement and
system reform projects. Other projects are focused on increasing adoptions; developing
assisted guardianship models that enable kin to become legal guardians for children in
their care; addressing the needs of parents with substance abuse problems; and providing
more intensive service options to special populations to prevent foster care placements.
Medicaid Program Waivers, Home and Community-Based Waivers, and Research and
Since the beginning of the Clinton Administration, DHHS has approved almost 300 program
waivers under Section 1915(b) (new programs, renewals, and modifications), and over 20
research and demonstration project waivers under Section 1115 authority. In
addition, over 240 home and community-based waivers (Sec.1915 (c)) are in operation.
Section 1915 (b) Program Waivers
Under freedom-of-choice waivers, States can establish primary care case management
programs, require Medicaid beneficiaries to choose among managed care plans, and
selectively contract with hospitals, nursing facilities, or other providers. States use
this flexibility to target managed care systems to their high-risk populations and to
purchase services in a cost-effective manner. States are taking full advantage of the
flexibility to design managed care programs for their Medicaid populations. Approximately
300 freedom-of-choice programs are up and running in almost every State.
States have also developed managed care programs to target a number of specific
priorities. For example, the Kansas Primary Care Network (PCN), which was established in
1984, was one of the first managed care programs to provide physician case management to
beneficiaries. Under this program, the State assigns each Medicaid beneficiary in the
seven most populous counties to a physician case manager. The case manager is responsible
for managing all of the recipient;s health care. Over 30 percent of the State's Medicaid eligibles are now
enrolled in this PCN program. State assessments have shown the program to be cost
effective as well as providing better access to services for the participating Medicaid
Section 1915(c) Home and Community Based Services Waivers
Home and community based services waivers give States the ability to establish home and
community based care programs that provide services to beneficiaries in the community
setting rather than in nursing homes and hospitals. Home and community based services
programs allow States to manage care provided to the elderly and disabled populations in
an efficient manner while increasing the consumer's satisfaction with the services provided.
States have made extensive use of this authority as well. Over 240 programs are now
operating. Every State is currently serving developmentally disabled and aged individuals
under a home and community based services program. States are also serving people with
HIV/AIDS, those with traumatic head injury, and medically fragile children. The
Administration is justifiably proud of its record in encouraging States to move people
from institutions into appropriate community settings.
Service Delivery and Financing Demonstrations
Medicaid's research and demonstration authority, Section 1115 of the Social Security Act, gives
States much broader opportunities to develop and test new and innovative ideas. States can
use this authority to develop sub-state and statewide demonstrations of new approaches to
health care financing and delivery.
This Administration has approved over 20 statewide Section 1115 Medicaid
demonstrations, and several more sub-state demonstration projects. Several additional
States have submitted proposals that are currently being reviewed. This Administration has
approved more statewide demonstrations than any previous Administration. We have actively
encouraged States to develop innovative reform demonstrations including managed care
approaches working with the private sector and public health providers.
For example, Hawaii QUEST creates a public purchasing pool that arranges for health
care through capitated managed care plans. The Hawaii QUEST program provides seamless
coverage to people previously covered through Federal and State programs and the uninsured
by building on the State's unique exemption to the Employee Retirement Income Security Act
(ERISA) granted by Congress in 1983. The Medicaid income eligibility level has been
expanded to 300 percent of the Federal Poverty Level and categorical requirements were
eliminated. The proposal was submitted on April 19, 1993 and approved on July 16, 1993.
The program was implemented on August 1, 1994.
A second example is Vermont. The Vermont Health Access Plan expands eligibility to
uninsured Vermonters with incomes under 150 percent of the Federal Poverty Level,
implements a managed care system, and extends a prescription drug benefit to the State's
lower-income Medicare beneficiaries. Approximately 90,000 individuals, including 26,000
previously uninsured, will be covered. The proposal was submitted on February 24, 1995 and
approved on July 28, 1995. The program was implemented on January 1, 1996.
In addition, the Administration has approved smaller, more targeted Section 1115
demonstrations. Some of these demonstrations provide preventive services to children, test
extended family planning services, and establish alternative delivery systems.
The U.S. Department of Health and Human Services is committed to the waiver process and to
allowing States to improve programs through research and state flexibility with
appropriate accountability to the taxpayer and safeguards for affected families and
children. I know we all agree that waivers are an important part of our policy development
process and provide wonderful opportunities for States to help their citizens in
innovative ways. Both the Clinton Administration in general, and HHS in particular, are
committed to working with States to develop programs that work. Our critical job is to
assure that waivers can expand and change programs constructively while maintaining
protective safeguards to assure that families and children are suitably supported while
States explore various policy options.
Thank you. I would be pleased to answer any questions you may have.