Congress and the Trump Administration Are Curbing Section 1115 Waiver Abuse and Reinforcing Real Medicaid Priorities
Key Findings
- Section 1115 demonstration waivers are meant to give states flexibility for their Medicaid programs. More than half of Medicaid spending was authorized through these waivers.
- States have sidestepped budget neutrality requirements for 1115 waivers to pursue political goals.
- The Biden administration approved waivers to let states keep ineligible enrollees on the program and use medicaid money to pay for refrigerators, air filters, and rent.
OVERVIEW
Section 1115 demonstration waivers are meant to give states flexibility in their Medicaid programs.1 States can request a waiver from the U.S. Department of Health and Human Services (HHS) to demonstrate new state-specific approaches to running their Medicaid programs.2
These waivers are ubiquitous. Most Medicaid spending now runs through 1115 waivers.3 While these waivers are supposed to be subject to budget neutrality requirements, states game the system to increase federal spending.
Arkansas, for example, used a waiver to cover Medicaid expansion enrollees through private ObamaCare plans, costing taxpayers more than twice as much as traditional Medicaid and driving up premiums in the individual market.4 Other states have used waivers to keep individuals on Medicaid for years after becoming ineligible.5 Some states have even used waivers to spend Medicaid dollars on things like refrigerators, groceries, rent, and more.
Fortunately, Congress and the Trump administration have cracked down on these abuses, requiring real budget neutrality for Medicaid waivers and ending states’ abuse of waivers that don’t advance Medicaid’s objectives.6
Section 1115 demonstration waivers are meant to give states flexibility for their Medicaid programs. More than half of Medicaid spending was through these waivers.
Section 1115 of the Social Security Act grants the HHS Secretary authority to approve waivers that demonstrate state-specific methods to improve the Medicaid program.7 Notably, 1115 waivers are supposed to be budget neutral to the federal government.8 Put another way, the federal government should not spend more with the waiver than it would have without the waiver.9
In 2025, there were 81 approved 1115 waivers across 48 states, Washington, D.C., and two U.S. territories.10 Notably, more than half of Medicaid spending now flows through 1115 waivers and another quarter through other waivers.11 In several states, more than 90 percent of Medicaid spending runs through 1115 waivers.12
While 1115 waivers can be useful tools, these waivers have often been used to exploit Medicaid objectives and improperly increase federal spending. In 2025, President Trump signed the One Big Beautiful Bill Act into law, reinforcing budget neutrality and holding states accountable.13
States have sidestepped budget neutrality requirements for 1115 waivers to pursue political goals.
Although 1115 waivers are supposed to be budget neutral, states have spent decades sidestepping those requirements to pursue political goals. Under President Reagan, the Office of Management and Budget began requiring HHS to enforce budget neutrality in 1115 waiver approvals.14-16 But in 1993, the Clinton administration drastically loosened these requirements.17-18 The Obama and Biden administrations doubled down on those looser rules, approving waivers that significantly increased federal costs.
The Government Accountability Office (GAO) has raised concerns about those budget neutrality standards for more than three decades.19-27 In 1995, for example, GAO testified that the Clinton administration had interpreted the requirement “so loosely that it was almost meaningless.”28
Nowhere is this looser interpretation of budget neutrality more visible than in Arkansas. In 2013, the Obama administration approved Arkansas’s request to create a “private option” model of Medicaid expansion.29 Under this model—spearheaded by Democrat Mike Beebe—the state delivers Medicaid benefits to expansion enrollees primarily through qualified health plans on the ObamaCare exchange, rather than the traditional Medicaid system.30
At the time, the Beebe administration’s own Medicaid director warned privately that the cost of this model would be “higher than expanding traditional Medicaid.”31 When it submitted its waiver request, the state’s actuaries never even constructed a “without waiver” baseline for budget neutrality calculations, simply assuming the plan would be budget neutral.32
To justify its approval, HHS ultimately allowed Arkansas to assume the “hypothetical” cost of increasing Medicaid provider reimbursement rates by up to 67 percent.33 Despite warnings from the Obama administration’s own actuaries questioning these assumptions, HHS approved the waiver, believing it was the only politically viable path for Arkansas to expand ObamaCare.34-35
Those concerns have turned out even worse than initially feared.36 According to the state’s own evaluation of its waiver, the private option model turned out to be twice as expensive as conventional Medicaid expansion would have been.37 This model is so expensive that the costs for able-bodied adults in private option plans are even higher than the costs of the 20 percent of expansion enrollees excluded from the private option model, including those the state classifies as “medically frail.”38-39
Worse yet, this private option model spiked premiums in the individual health insurance market, further driving up costs for taxpayers.40 Data obtained from the largest insurance carrier revealed that private option enrollees were nearly 20 percent more expensive to cover than other enrollees, directly increasing premiums and ultimately taxpayer-funded ObamaCare subsidies.41 Due in large part to the private option, Arkansas’s health insurance market now has the second-worst risk pool in America.42
Shortly after Arkansas received approval for this model, other states followed suit.43 But each of those other states have since scrapped the model, citing significantly higher costs compared to conventional Medicaid models.44
The Biden administration approved waivers to let states keep ineligible enrollees on the program and use Medicaid money to pay for refrigerators, air filters, and rent.
The Biden administration doubled down on waivers that significantly increased federal costs. Between 2022 and 2024, HHS approved more than a dozen states’ requests to grant “continuous eligibility” waivers, allowing otherwise ineligible enrollees to remain continuously enrolled in the program, sometimes for many years, despite the changes in their circumstances that have affected eligibility.45-58 These waivers covered both children and able-bodied adults, with continuous eligibility lasting for up to six years in some cases.59
These states acknowledged in their waiver requests that the waivers would increase enrollment—and therefore federal costs.60-67 Biden’s HHS approved the waivers anyway, unlawfully treating ineligible enrollees as “hypothetical” costs that could otherwise be covered by Medicaid and specifically excluding the enrollment impact of the waivers from the budget neutrality review altogether.68-81
In July 2025, the Trump administration cracked down on state waivers that expanded continuous eligibility beyond statutory limits, noting the cost and program integrity weaknesses that those waivers have created.82 HHS will no longer approve these unlawful waivers and began phasing out those approved under the Biden administration.83
The Biden administration’s commitment to “social determinants of health” also encouraged government agencies to imagine new policies that would allow Medicaid dollars to go toward non-Medicaid purposes.84 In response, states pursued 1115 waivers for improper spending far beyond the scope of the Medicaid program, siphoning resources away from the truly needy.
According to the Biden administration, social determinants of health are the “conditions in the environments where people are born, live, learn, work, play, worship, and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks.”85 These are supposedly any non-medical factors that affect health. As defined by the Biden administration’s HHS, these determinants could include almost anything.86 It is unsurprising that in its efforts to expand welfare, the Biden administration encouraged and approved state requests to use Medicaid dollars to pay for everything from groceries to air conditioning to rent, and everything in between.87-111
The Biden administration authorized states to use Medicaid funding to spend nearly $24 billion on social determinants of health unrelated to the program’s objectives.112 HHS rewrote their budget neutrality rules to authorize these waivers, again counting new costs as “hypothetical” as a pathway to approve waivers that increased federal costs.113-114
California
Received approval to use Medicaid funding to cover sports club fees and gym memberships, bicycles, scooters, roller skates, music and art lessons, and summer camps.115
New Jersey
Received approval to cover payments for housing support, refrigerators, mold and pest remediation, home-delivered meals, pantry stocking, and 30 days of groceries.116
Virginia
Received approval to use Medicaid funding to cover payments for housing support, pest eradication, and account credits for taxi or ridesharing services.117
North Carolina
Received approval to use Medicaid funding to cover payments for transition and moving costs, purchases of household goods and furniture, utilities, air filtration devices, air conditioning, humidifiers, refrigeration, mold and pest remediation, carpet replacement, bed and bath linens, home-delivered meals, and pantry stocking.118
Massachusetts
Received approval to use Medicaid funding to cover security deposits, first month’s rent, movers, pest eradication, household goods and furniture, air filters, air conditioning, humidifiers, heaters, generators, and nutrition counseling.119
Fortunately, the Trump administration rightly rescinded guidance issued by the Biden administration authorizing these unlawful waivers using Medicaid money to pay for social determinants of health.120
The Bottom Line: Congress and the Trump administration have taken action to ensure that states’ 1115 waivers maintain budget neutrality and to prevent Medicaid dollars from being spent on non-Medicaid purposes. States should implement these reforms immediately.
Where the Biden administration encouraged fraud and government dependency, the Trump administration promotes program integrity and self-sufficiency. In the landmark legislation passed by Congress and signed into law by President Trump, Medicaid reforms protect the truly needy.
The law now requires real budget neutrality for Medicaid 1115 waivers.121 This provision prevents states from sidestepping budget neutrality as so many have done. In particular, the law prohibits HHS from approving waivers without certification from its chief actuary that the waiver will not increase federal costs.122
In addition to new statutory protections, the Trump administration has taken multiple steps to rescind the worst Biden-era guidance that allowed Medicaid dollars to be spent on ineligible enrollees and non-Medicaid purposes like rent, air conditioning, and help applying for other welfare programs.123-124 Together, these reforms crack down on waiver abuse and restore program integrity to the Medicaid program.
Section 1115 waivers can be useful tools when used properly, but under the Biden administration, 1115 waivers were used to grow Medicaid far beyond its purpose. The Biden administration’s serious Medicaid mission drift revealed its desire to trap increasing numbers of Americans in dependency. Congress and the Trump administration have reprioritized the truly needy by putting an end to 1115 waiver exploitation. By stopping Medicaid dollars from flowing to non-Medicaid purposes, the Trump administration is reprioritizing program integrity. These reforms reorient Medicaid to the population the program was intended to serve and reinforce the state-federal partnership that is crucial to the program’s success.
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