A New Federal Era for Medicaid Demonstrations: State Waivers to Watch in 2026 and 2027

Section 1115 demonstration authority is a major Medicaid financing and innovation tool: 46 states and the District of Columbia operate at least one demonstration, and roughly half of all Medicaid spending is authorized under Section 1115 authority—enabling states to test coverage and delivery system reforms, tailor their programs to state priorities and reinvest savings into Medicaid improvements.

The second Trump administration is reshaping federal Section 1115 policy in ways that, taken together, discourage states from pursuing demonstrations and reduce the federal funding available to support them, including by discontinuing support for initiatives approved under prior administrations (such as continuous eligibility, workforce initiatives and Designated State Health Program (DSHP) and Designated State Investment Program (DSIP) financing) and rescinding the framework for health-related social needs (HRSN) services.

Most significantly, CMS’s June 2026 guidance fundamentally shifts how it assesses “budget neutrality,” its method for ensuring that a demonstration does not increase federal Medicaid spending. Building on H.R. 1, which codified the budget neutrality requirement and newly requires CMS Chief Actuary certification, the guidance requires more expansive cost analysis earlier in the process and applies more stringent standards, with a proposed rule expected later this year.

Taken together, CMS’s budget neutrality and related demonstration policies are likely to narrow the approval pathway for Section 1115 initiatives generally, and particularly HRSN services, delivery system reform and provider incentive programs, and uncompensated care pool financing.

2026 and 2027 will be a critical period: 16 states have waivers expiring in 2026 and 11 in 2027, alongside pending new applications. Upcoming CMS decisions will provide the clearest indication of how far the administration will go to limit Section 1115 demonstration authority.

, a product of Manatt Health’s Vital Signs: 50-State Tracking, examines how the second Trump administration is reshaping Section 1115 demonstration authority, summarizes recent CMS budget neutrality and related policy actions, and provides a survey of state waiver renewals and new requests of interest to watch through 2026 and 2027.

About Vital Signs 50-State Tracking

H.R. 1 and other federal actions are driving historic health care cuts. Manatt Health is tracking state responses and analyzing the effects on coverage, affordability, and system stability. Vital Signs helps stakeholders understand near- and long-term impacts to inform policy, accountability, and collaboration.