KFF Brief Analyzes CMS's New 1115 Waiver Budget Neutrality Rules
In a KFF brief, the organization examines CMS's June 2026 guidance reinterpreting Section 1115 waiver budget neutrality requirements, which were codified in federal statute for the first time by the 2025 reconciliation law along with a new requirement that CMS's Chief Actuary certify waivers as budget neutral before approval. KFF reports the guidance introduces more rigorous prospective budget neutrality determinations, new rules on "hypothetical" expenditures that may require more states to show offsetting savings, inclusion of administrative costs in calculations, and limits on budget neutrality savings, with forthcoming rulemaking expected in early 2027. KFF notes CMS declined to renew Arkansas's ARHOME waiver citing the new rules, while approving five state waivers supporting community reentry for incarcerated people in late September 2026. KFF identifies open questions on financial impact methodology, monitoring, evaluation standards, and financial risk that the forthcoming rule may address.