Using Medicaid to Support Working Age Adults with Serious Mental Illnesses in the Community: A Handbook. Medicaid Waivers and Managed Care


The BBA-97 gave states an avenue to implement managed care without having to obtain federal waivers, but requires that beneficiaries have a choice of two health plans. Some state officials perceive this as an obstacle to a state's operating a unified mental health service delivery system. Consequently, managed behavioral health services most commonly continue to be furnished under waivers since services are furnished through single specialty mental health organizations.12 Waivers also continue to be necessary in order for a state to expand Medicaid eligibility to cover persons who do not meet usual Medicaid financial and categorical eligibility criteria.13

While the use of managed care in the delivery of Medicaid services has been associated very closely with obtaining waivers, a waiver is only necessary when a state wishes to mandate the enrollment of individuals to a managed care plan or otherwise limit providers. Managed care service delivery models may be employed without a waiver so long as beneficiaries may opt in or out of the arrangement.14

The following two sections describe the two applicable federal waiver authorities that states have used to implement managed mental health services. These waiver authorities differ in significant ways. When reviewing the sections on 1915(b) and 1115 waivers, it is important to keep in mind some fundamental provisions governing their use. In particular:

  • The use of a waiver authority does not override the state's obligation to ensure that beneficiaries receive the services covered in its Medicaid state plan. The use of a waiver authority permits a state to implement an alternative service delivery method. Employing a waiver authority to implement managed care does not nullify the underlying coverage of services contained in the state plan; instead, it affects how they are delivered and reimbursed. Under a waiver authority, a state may elect to furnish additional services over and above those contained in the state plan.
  • Operating services under a waiver authority can be administratively burdensome for a state because of the extensive Medicaid managed care requirements. In addition, meeting federal financial tests also can be a major challenge.
  • Except in the case of 1115 demonstration waiver programs, the use of a waiver authority does not permit a state to modify Medicaid eligibility rules. When employed as an alternative to conventional Medicaid fee-for-service delivery ar-rangements, neither the 1915(b) nor 1115 demon-stration waiver authorities permit a state to im-pose limitations on how many beneficiaries may receive services.15
  • Regardless of the type of waiver authority employed, state contracts with managed care organizations must meet basic federal requirements. Moreover, states must oversee the quality of services furnished through managed care arrangements, as required by federal regulations.

In sum, many basic Medicaid requirements continue to apply. Indeed, in many respects, states must meet more stringent and varied requirements to operate 1915(b) and 1115 waiver programs than when services are furnished under conventional fee-for-service arrangements.

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