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Page 4 – Steve Ford

Using the President’s Budget trend rate aligns the demonstration trend rate with federal budgeting principles and assumptions.

Hypothetical Budget Neutrality Treatment Under its current approach to budget neutrality, CMS generally treats expenditures for populations or services which could have otherwise been covered via the Medicaid state plan, or other title XIX authority, such as a section 1915 waiver, as “hypothetical” for the purposes of budget neutrality. In these cases, CMS adjusts budget neutrality to account for the spending which the state could have hypothetically provided through the Medicaid state plan or other title XIX authority. CMS does not, however, currently allow for budget neutrality savings accrual as a result of including hypothetical populations or services in section 1115 demonstration projects. To allow for hypothetical expenditures, while preventing them from resulting in savings, CMS currently applies a separate, independent budget neutrality “supplemental test” for hypothetical expenditures. These supplemental budget neutrality tests subject the hypothetical expenditures to pre-determined limits to which the state and CMS agree, and that CMS approves, during negotiations. If the state’s “with waiver” (WW) hypothetical spending exceeds the supplemental test’s expenditure limit, the state agrees (as a condition of CMS approval) to offset that excess spending with savings elsewhere in the demonstration or to refund the FFP to CMS.

The SMI MEG will be treated as hypothetical for budget neutrality purposes. For each of these MEGs, CMS calculated the WOW baseline (which refers to the projected expenditures that could have occurred absent the demonstration and which is the basis for the budget neutrality expenditure limit for each approval period). The projected demonstration expenditures associated with each of these MEGs in the WOW baseline have been trended forward using the President’s Budget trend rate to determine the maximum expenditure authority for the new approval period. Using the President’s Budget trend rate aligns the demonstration trend rate with federal budgeting principles and assumptions.

CMS has deemed this renewal of the FFCY demonstration to be budget neutral because the demonstration authority to cover the FFCY population is needed for only a temporary period, through 2030, when all FFCY will be covered via the Medicaid state plan FFCC population. Further, through monitoring budget neutrality, CMS determined that the actual experience of states’ covering out-of-state FFCY resulted in limited total expenditures and low enrollment within the demonstrations. CMS generally believes that this FFCY demonstration coverage poses minimal financial risk to the federal government since FFCY demonstration spending is miniscule across states. This decision will increase the administrative ease of maintaining FFCY demonstration coverage in Virginia.

The state will be required to report total expenditures and member months in its demonstration monitoring reports. The state must still report quarterly claims and report expenditures on the CMS 64.9 WAIVER form. Failure to report FFCY expenditures and member months will result in reinstatement of the budget neutrality requirement.

Mid-Course Correction CMS has included a mid-course correction STC in this demonstration approval to provide flexibility and stability for the state over the life of a demonstration. This update identifies a list