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This week, our In Focus section examines new federal policy developments affecting Medicaid Section 1115 demonstrations. The Centers for Medicare & Medicaid Services (CMS), on March 4, 2025,  two guidance letters issued by the prior Presidential Administration that defined and provided the framework for state Medicaid programs to cover health-related social needs (HRSNs) using Section 1115 authority.

Though specific Medicaid priorities under the Trump Administration are nascent, 黑料不打烊鈥� federal and state experts are monitoring these developments. This article describes the withdrawn policy, known implications for states with approved and pending proposals, and the imperative to plan for a variety of scenarios and future opportunities.

Background on HRSN Initiative in Section 1115 Demonstrations

CMS-approved Section 1115 demonstrations allow states to pilot alternative methods to improve the accessibility, coverage, financing, and delivery of healthcare services under joint federal-state funded programs, specifically Medicaid and the Children鈥檚 Health Insurance Program (CHIP).

Addressing health disparities and promoting integrated care in Medicaid became a key focus of the Biden Administration. In November 2023, CMS introduced a , giving state Medicaid agencies the opportunity to address the broader social determinants of health (SDOH) that affect their enrollees, leading to better health outcomes. The agency published an  to the guidance in December 2024. The new initiatives were not intended to replace other federal, state, and local social service programs, but rather to coordinate with those efforts.

Key Takeaways for States

The following critical components of the March 2025 announcement and the present policy landscape should inform state Medicaid agency and stakeholder response and future planning work.

First, this guidance does not affect states with a current, active Section 1115 demonstration, state plan, or 1915 waiver programs that include HRSN. States with HRSN demonstrations will maintain their approved programs; however, states and their partners should prepare for shifts in federal reporting, oversight, and evaluation expectations. Separately, states may wish to re-evaluate their resource allocation and consider adjustments that may be needed to better align with a new federal policy environment.

States seeking any amendment or extension of their demonstration program鈥攅ven if unrelated to HRSN鈥攕hould expect this activity to trigger a CMS review of the HRSN component of the 1115. States will need to consider the strategic advantages and necessity of such requests relative to the implications to their HRSN initiative. They also should consider planning for nonrenewal of their HRSN programs in advance of the demonstration鈥檚 current expiration date.

Pending state HRSN Section 1115 demonstration proposals are not expected to be approved. The Section 1115 option for federal matching funds to provide up to six months of housing supports, nutrition supports, and associated infrastructure capacity funding no longer aligns with the Trump Administration鈥檚 objectives for Medicaid and CHIP. Stakeholders interested in these concepts should consider alternative strategies and investment options.

What to Watch

Notably, CMS did not rescind the 2021 State Health Official Letter RE:  (SDOH) (SHO# 21-001) published during the first Trump Administration. States and their partners should monitor CMS鈥檚 actions and signals for the agency鈥檚 posture toward SDOH proposals.

A new group of states proposing alternative and revised demonstration concepts and innovations is likely to emerge. These states may provide early signals of the nature and breadth of the Section 1115 demonstrations CMS is willing to consider. With regard to SDOH, states and their partners should consider aligning proposals with the approaches outlined in the 2021 guidance for regular federal program authorities (e.g., 1915(i) state plan options, 1915(c) waiver options) as well as certain managed care authorities.

In addition, states and Medicaid stakeholders should watch for other Medicaid and CHIP policy priorities advanced through demonstration and other authorities, including efforts to address substance use disorders (SUD) and reentry initiatives that focus on supporting individuals who are transitioning from incarceration back into society. SUD and reentry initiatives can intersect with Section 1115 demonstrations and other authorities, such as managed care, in a variety of ways. The intersection of these issues can provide another area of common ground and opportunity to continue work on state reentry initiatives, though likely with new and modified federal parameters.

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黑料不打烊 is monitoring other developments in Congress and from the White House and agencies affecting federal Medicaid and CHIP policy changes. The complexity and nuances associated with potential future statutory and regulatory changes necessitate thoughtful and immediate impact analysis, scenario planning, and preparations that will allow organizations to pivot if and when policy changes occur. 黑料不打烊 colleagues have expertise in all of the components critical to staying informed, engaged, and prepared for changes to Section 1115 programs鈥攆rom the policy knowledge to actuarial/budgeting talent, to communications and project management skills, as well as the necessary IT infrastructure.

For questions about these developments and your organization鈥檚 plan to adapt to new federal Medicaid policy priorities, contact our featured experts below. 

This week, our In Focus section reviews priorities outlined in recent State of the State addresses, building on an earlier article:  We examine specific proposals from the governors of Illinois, Indiana, New Mexico, and South Carolina, as detailed in the 黑料不打烊 Information Services (黑料不打烊IS) report, 2025 State of the States Overview. These states offer examples of the trending policy changes and investments governors intend to make, providing valuable insights into the evolving healthcare landscape.

Key Trends in Governors鈥� Budgets

State of the State addresses provide insights into governors鈥� priorities, reflecting state budgets, multiyear initiatives, and changes in federal policies and funding. These priorities signal strategic shifts healthcare stakeholders must navigate to remain aligned with the evolving state and federal policy landscapes. Common themes that 黑料不打烊 (黑料不打烊) is tracking this year include healthcare affordability, Medicaid work requirements, workforce shortages, and enhanced oversight of healthcare entities.

Highlights by State

Illinois Gov. J.B. Pritzker  a 2025 State of the State Address on February 19, 2025, during which he presented his executive  for fiscal year (FY) 2026 and discussed strengthening oversight of healthcare entities like pharmacy benefit managers (PBMs) and health insurers. Governor Pritzker introduced the Prescription Drug Affordability Act, which seeks to further regulate PBMs, reduce drug costs, and protect independent pharmacists. More specifically, it would give the state Department of Insurance full statutory authority to examine PBM records and require these organizations to comply with annual auditing and reporting requirements. The governor also called for a ban on prior authorization for behavioral healthcare and proposed requiring insurance companies to reimburse patients for reasonable travel costs for medical appointments when the distance they must travel exceeds network adequacy requirements.

Pritzker鈥檚 budget allocations include:

• $191.8 million to support the Certified Community Behavioral Health Clinic (CCBHC) Medicaid Demonstration Program
• $27.9 million to maintain the state鈥檚 maternal and child home health programs
• $27.7 million to support nonhospital facilities that provide psychiatric care to people younger than 21 years old
• $132 million for Medicaid-like coverage for undocumented adults ages 65 and older
• A shift in funding from the state鈥檚 Exchange to a State-Based Marketplace, which would end use of the federal platform

In addition, the budget plan eliminates funding for Medicaid-like coverage for undocumented adults ages 42鈭�64, which cost approximately $420 million in one year.

Indiana Gov. Mike Braun  his address on January 29, 2025, during which he discussed his support for state legislation that would address healthcare costs. Governor Braun urged the legislature to pass multiple bills, including:

• House Bill (HB) 1003: Specifies that the state鈥檚 Medicaid Fraud Control Unit (MCFU) may investigate provider fraud, insurer fraud, and duplicate billing and would require more healthcare price transparency, stop anticompetitive practices that drive up prices, and put an end to surprise billing
• Senate Bill (SB) 3: Would mandate that third party administrators, PBMs, employee benefit consultants, and insurance providers acting on behalf of plan sponsors have a fiduciary duty to the plan sponsors
• HB 1004: Would bolster oversight of nonprofit hospital financials

The governor also encouraged the legislature to support efforts focused on PBM reforms.

Governor Braun鈥檚 proposed  for the 2025鈭�27 biennium recommends a general fund appropriation of more than $5 billion in FY 2025鈭�26 and $5.3 billion in FY 2026鈭�27 for the state Office of Medicaid Policy and Planning. Moreover, the state is still managing the effects of a nearly $1 billion shortfall it identified in the Medicaid budget in FY 2024. The Indiana Family and Social Services Administration predicts total Medicaid expenditures will reach nearly $21 billion in FY 2025, up 6.4 percent from $19 billion in 2024 and will likely increase by at least another $1 billion in both 2026 and 2027.

New Mexico Gov. Michelle Lujan Grisham  her 2025 State of the State Address on January 21, 2025, wherein she discussed the new state Health Care Authority (HCA), which launched in July 2024. According to Governor Grisham, the HCA has helped the state to increase Medicaid provider rates, create a Health Care Affordability Fund, and expand the Health Care Professional Loan Repayment Program. To continue with HCA鈥檚 work, the governor announced that in March 2025, the state will be sending more than $1 billion to New Mexico hospitals through the Medicaid provider tax. She also recommended that the state legislature approve $50 million in additional funding for the Rural Health Care Delivery Fund, which supports getting new and expanded primary, behavioral, maternal and child, and specialty healthcare services into rural areas.

In her proposed FY 2026 , the governor recommends:

• $13 million in recurring funds to increase reimbursement rates up to 150 percent of Medicare rates
• $5.3 million for the Program of All-Inclusive Care for the Elderly (PACE)
• $2.5 million for increased assisted living facility rates
• $2.9 million to increase behavioral health rates for non-Medicare equivalents
• $30 million annually over three years to expand Medicaid services, including medical respite for people who are homeless, food support for certain individuals who pregnant, infrastructure to provide medical services to people who are justice-involved, and infrastructure to provide housing and food supports.

In addition, the budget recommends a $100 million special appropriation to address behavioral health needs, which will fund the 988 program, an investment to secure a federal match for the CCBHC Initiative, more drug and alcohol treatment services at the New Mexico Behavioral Health Institute, and medical and behavioral health providers at the Corrections Department.

South Carolina Gov. Henry McMaster  his 2025 State of the State Address on January 29, 2025, in which he discussed the state鈥檚 siloed health and human services delivery system, which he said creates a difficult landscape to navigate for people with physical disabilities, special needs, and mental health issues. Governor McMaster said the state must make immediate changes to the Department of Mental Health and Department of Disabilities and Special Needs and proposed making the boards of commissioners that run the departments directly accountable to the governor.

The governor鈥檚 proposed FY 2025鈭�26  highlighted his priority of reimplementing Medicaid work requirements through a Section 1115 demonstration waiver, which the state previously had in place during President Donald Trump鈥檚 first administration. Governor McMaster has already requested an expedited approval of the demonstration, which would expand Medicaid eligibility to 100 percent of the federal poverty level (FPL) for parents who are working or going to school. Under South Carolina鈥檚 existing eligibility rules, parents no longer qualify for Medicaid if they earn more than 67 percent of the FPL. The work and school requirements would only apply to parents with incomes of between 67 percent and 100 percent of the FPL.

The budget also recommends approximately $79 million in recurring funds to support the state鈥檚 Medicaid program. Those funds would be allocated as follows:

• $5.7 million toward increasing behavioral health provider payment rates
• $5.4 million toward increasing opioid use disorder provider reimbursement rates
• $10 million toward reducing waiting lists for home and community-based services
• $2.4 million toward intensive partial hospitalization and outpatient behavioral health programs

In addition, the budget recommends funding for the Department of Public Health and $1.6 million in nonrecurring funds and $625,000 in recurring funds for the Healthy Moms, Healthy Babies program and its mobile maternity care vehicle.

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 has prepared a comprehensive report summarizing each State of the State address and governors鈥� proposed budgets, which is available to 黑料不打烊IS subscribers. It also comprises a section highlighting trends in the issues covered in each speech, including maternal health, substance use disorder, Medicaid work requirements, prescription drug prices, and provider rates.

黑料不打烊 supports healthcare stakeholders in responding to these developments, offering strategic guidance and expertise to help navigate the evolving policy landscape and align with the shifting priorities outlined in these addresses. Contact聽one of our experts below for more information about the report or to connect with one of 黑料不打烊鈥檚 state policy and market experts.

As policymakers engage the state budget process, Medicaid continues to play a critical role. This role is programmatic, serving as the source of coverage for 1 in 4 Ohioans, including as the finance mechanism for half of all births in the state and the primary source of coverage for the elderly and disabled. However, a number of proposals are currently being discussed by the House, including changing how poverty programs are adjusted for inflation, reversing some Medicaid payment expansions, lowering the minimum federal funding rate for Medicaid, making the federal funding rate the same for all Medicaid expansion populations, limiting taxes on Medicaid providers, capping the amount spent per Medicaid enrollee, standardizing how administrative costs are matched, and other unspecified changes to Medicaid funding through Medicaid match. But these proposals can鈥檛 be viewed in isolation because the program is deeply intertwined with Ohio鈥檚 ability to have a balanced budget, serving a role in reducing direct state spending by enabling the draw down of federal dollars through 鈥淔MAP.鈥� But what is FMAP and what happens if Congress fundamentally changes how it鈥檚 calculated?

FMAP

The Federal Medical Assistance Percentage (FMAP) is a critical component of Medicaid funding, ensuring that states receive federal support to provide healthcare services to low-income individuals. FMAP is calculated based on a state’s per capita income relative to the national average. States with lower per capita incomes receive a higher FMAP, meaning the federal government covers a larger share of Medicaid costs, while states with higher per capita incomes receive a lower FMAP. The FMAP formula ensures that states with greater financial need, like , receive more federal assistance. For Federal Fiscal Year (FFY) 2025, Ohio’s FMAP is 64.6%, which means that for every dollar Ohio spends on most Medicaid services, 64.6 cents comes from the federal government. Even then, much of the state share is financed through fees on entities like hospitals, nursing facilities and health insurance companies.  

Contextually, Ohio is a 鈥渞ecipient state,鈥� indicating it receives more in federal tax revenue than it collects to finance the program. And, as was noted in , Ohio continues to lag other states in terms of economic growth and has an aging population. As such, the availability and predictability of federal funding is a critical input in future years, particularly in long term care where most of the expense will continue to increase. With Congress deliberating all of these proposals, what could the impact be in Ohio? To illustrate, it may be good to focus on one area: the elimination of enhanced federal funding for those covered by the Medicaid expansion.

Impacts

There has been some discussion during testimony that if the FMAP rate for the expansion population were to change, it could trigger an automatic end to the expansion itself.  Importantly, there would be a disproportionate impact in Ohio鈥檚 rural counties where expansion coverage rates are higher. In fact, as of December 2024, 362,829 individuals in rural Ohio counties received their coverage through expansion, alone. These individuals, in addition to the 1.1 million others in these Ohio counties, rely on Medicaid for essential healthcare services, including addiction treatment.

highlighting the importance of maintaining robust funding for these programs. Expansion has also been the primary source of funding for addiction treatment in the state, with Medicaid . If expansion were eliminated due to the change in FMAP, the consequences for treatment may mean either a greater obligation on the state to finance those services directly, or, Ohio may exacerbate the opioid use disorder crisis, putting additional strain on our healthcare system, particularly for behavioral health providers.

Conclusion

As we consider the future of Ohio’s Medicaid expansion, it’s essential to recognize the critical role that FMAP plays in sustaining our healthcare system and supporting our state’s economy. Any changes to the FMAP rate must be carefully evaluated to ensure that we do not undermine the progress we have made in expanding access to care and addressing the opioid crisis.

Beyond the immediate impact on healthcare services, changes to FMAP could also have broader economic implications for Ohio. Medicaid represents about 4% of the state’s GDP, playing a vital role in supporting jobs and economic activity. If just 1% of that GDP were suddenly eliminated due to a cut in federal or state funding, the consequences could be severe. A sudden reduction in Medicaid funding could lead to job losses in the healthcare sector, reduced economic activity, reduced labor force participation, and increased financial strain on state and local governments. The ripple effects would be felt across the economy, impacting not only healthcare providers but also businesses and communities that rely on the stability and support provided by Medicaid as well as the budgetary stability it provides to Ohio鈥檚 process.

On January 6, The Centers for Medicare & Medicaid Services (CMS) approved Medicaid State Plan Amendment . The SPA authorizes the California Department of Health Care Services Service (DHCS) to use an alternative payment methodology (APM) to pay Federally Qualified Health Centers (FQHC), Rural Health Clinics (RHC), and Tribal Health Programs at the Medi-Cal fee-for-service (FFS) rate for dyadic services. FQHCs and RHCs will receive a separate payment for dyadic services in addition to their standard prospective payment system (PPS)/all-inclusive payment rates in certain circumstances. This SPA is retroactively effective to March 15, 2023.

Key provisions are as follows:

• 颁补濒颈蹿辞谤苍颈补鈥檚 new set of dyadic benefits supports relationship-based caregiver and family surveillance and family-based interventions that bolster child development, recognizing the importance of the parent/caregiver and child dyad to support healthy child development. Dyadic health care services are ideally provided in the context of routine well child care in pediatric settings, meeting families where they regularly receive health care and related services.
• Services are linked to a child鈥檚 Medi-Cal coverage, providing a basis for revenue recovery for primary care pediatric settings and for cases in which the parent/caregiver may not be a Medi-Cal beneficiary.
• Services are exempt from the same day exclusion applied to FQHC and RHC settings. If FQHCs or RHCs have met their visit per day limit, then dyadic services provided to Medi-Cal-eligible members (children or parents/caregivers) will be reimbursed at the FFS rate. Any dyadic services that are provided to a non-Medi-Cal-eligible parents/caregivers for the direct benefit of Medi-Cal-eligible children will be reimbursed at the FFS rate.
• Payment for dyadic FQHC and RHC services will be reimbursed at the applicable FFS rate in addition to Medi-Cal member visits, which are reimbursed at the applicable PPS rate.

In addition, the dyadic care benefit provides a pathway for families to access additional supports via the new . Family therapy is a psychotherapy service that managed care plans provide under Medi-Cal鈥檚 Non-Specialty Mental Health Services benefits. Family therapy services support members younger than age 21 to receive up to five family therapy sessions before a mental health diagnosis is required. More importantly, children and youth (younger than age 21) may receive family therapy without the five-visit limitation if they (or their parents/caregivers) demonstrate certain risk factors, including separation from a parent/caregiver because of incarceration, immigration status, or death; foster care placement; food insecurity; housing instability; exposure to domestic violence or trauma; maltreatment; severe/persistent bullying; and discrimination.

黑料不打烊 (黑料不打烊) has been proud to partner with HealthySteps, as a DHCS-recognized model, to provide an evidence-based ( approach to implementing the new dyadic care benefits. Contact our experts below to learn more.