The Trump administration last week notified state Medicaid directors that it is imposing stricter financial oversight on Section 1115 demonstration waivers — pilot programs states use to test new approaches to Medicaid delivery and coverage. The changes carry direct implications for Montana, which relies on waiver authority for several Medicaid initiatives, including programs connected to tribal health services.

What Are Section 1115 Waivers?

Section 1115 demonstration waivers give states flexibility to design and test Medicaid programs that differ from standard federal requirements. States have used them to experiment with coverage expansions, new delivery models, and population-specific initiatives — including programs aimed at enrolling soon-to-be-released incarcerated individuals in Medicaid and, in four states in 2024, covering traditional healing practices at tribal health facilities and urban Indian organizations.

The programs are intended to improve health outcomes for Medicaid enrollees or to strengthen how state Medicaid programs are administered. Because federal dollars flow through these waivers, the administration argues closer financial scrutiny is warranted.

What the New Rules Require

Beginning January 1, states seeking waiver approval will need certification from the Centers for Medicare and Medicaid Services chief actuary confirming that a proposed waiver will not result in increased federal spending. That requirement adds a significant new analytical hurdle to the application process.

Beyond the certification mandate, CMS will require more detailed spending analyses and documentation from states before approving waivers, and will increase ongoing monitoring and evaluation of existing demonstration projects. Applications will also need to demonstrate alignment with what the administration describes as “promoting the objectives of the Medicaid statute” — language that gives federal officials broader discretion to reject programs they view as outside Medicaid’s core purpose.

The administration has already moved to roll back Biden-era waiver policies, including a framework that had allowed states to use Medicaid demonstration authority to address housing instability and other social factors affecting health. That expanded framework has been rescinded. The administration also previously reversed course on workforce-related Section 1115 initiatives.

Montana’s Stake

Montana’s Medicaid program, which covers a substantial share of the state’s lower-income residents and American Indian populations, could face complications as its existing and future waiver arrangements come under closer federal review. The four states that received 2024 approvals for waivers covering traditional healing at tribal facilities may face heightened scrutiny when those programs come up for renewal or amendment.

Montana is home to seven federally recognized tribes and a network of tribal health facilities and urban Indian health organizations. Demonstration waivers that expand or tailor coverage for those populations are a meaningful part of how the state structures Medicaid services for tribal members. Montana’s tribal colleges, similarly, are navigating federal budget pressures that have forced institutions to seek alternative funding arrangements as Washington reconsiders its financial commitments to Indian Country.

The new certification requirement — that a waiver not increase federal costs — may make it harder for states to win approval for coverage expansions, even those with documented health benefits, if the actuarial math doesn’t pencil out to federal savings or neutrality.

Broader Medicaid Context

The waiver tightening comes alongside sweeping Medicaid reductions enacted through the One Big Beautiful Bill Act, which cut roughly $900 billion from the program. Together, the spending cuts and tighter waiver rules represent the most significant restructuring of Medicaid in years, shifting more financial risk and administrative burden to states while reducing their flexibility to craft locally tailored solutions.

State budget officials and Medicaid administrators across the country are now recalibrating their program designs, anticipating that projects previously approved under more permissive frameworks may face new obstacles — or may not survive the updated certification standard.

What Comes Next

States with pending waiver applications or approaching renewal dates will need to prepare more detailed actuarial documentation and align program designs with the administration’s narrower interpretation of Medicaid’s statutory objectives. CMS has not released a comprehensive guidance document yet, but the letters to state Medicaid directors signal that the new standards will be applied rigorously beginning in January.

For Montana policymakers, the changes represent another federal variable to manage as state and interim officials work through a range of funding and program decisions ahead of the 2027 legislative session.