April 11, 2025

First, in terms of NY’s 1115 HERO Waiver Amendment (approval letter 1/2024), the federal funds that are the subject of the CMS policy change (discussed below) are currently supporting 1115 HRSN, HERO, and Workforce Initiatives in the Waiver.

There is no immediate threat to the 1115 HERO Waiver Program, however the CMS policy change will make it highly unlikely NYS will get federal matching funds if it seeks an extension of the Amendment in 2017 when the current Waiver is set to expire. It also impacts unspent 1115 federal funds, and it makes it very unlikely states will be able to secure new 1115 Waivers that include federal match assistance.

This is an administrative action by CMS and has no connection to the ongoing threat of federal budget cuts.

(This from an expert at the Fiscal Policy Institute):
More about Designated State Health Programs: Medicaid has fairly strict rules about what kinds of expenditures it will match (healthcare spending) and what kinds it won’t (workforce training, public health education, road maintenance, you name it). But within the 1115 waiver process, the federal government can allow the state to say “look, we’re spending some money on a healthcare-related program that isn’t usually considered matchable Medicaid spending, but arguably it’s pretty good program and the federal government can “designate” it as Medicaid-matchable, thus generating extra federal Medicaid matching funds which can then be spent on 1115 waiver initiatives. For example if the state is spending $100M on smoking cessation programs and the state persuades the federal government to designate this program as a DSHP, then the federal government will match the spending by giving the state another $100M, which the state can then use on other things. The list of existing New York DSHPs is in the waiver application as Attachment N. (Source: Michael Kunnican at The Fiscal Policy Institute, via the Medicaid Matters listserv)

CMS policy shift puts billions for New York’s Medicaid program on the line
The Trump administration is ending a policy that doles out federal Medicaid matching funds as a kind of credit for certain state-funded health initiatives.
By Maya Kaufman, Katelyn Cordero | 04/11/2025 12:19 PM EDT, Politico
NEW YORK — The Trump administration will stop doling out federal Medicaid matching funds as a kind of credit for certain state-funded health initiatives, cutting off billions of dollars for New York in the coming years.

The Centers for Medicare and Medicaid Services announced the change in a letter Thursday to state Medicaid directors, saying it has “renewed concerns about the appropriateness of providing federal funding for these programs” despite parameters and guardrails put in place under waivers approved by the Biden administration.

Under New York’s amended Medicaid 1115 waiver, which was approved in January 2024, the federal government authorized up to $4 billion in matching funds for designated state health programs to “free up” state dollars for a healthy equity demonstration project.

“Federal DSHP funding is neither integral to a section 1115 demonstration nor a prudent federal investment,” CMS Deputy Administrator and Director Drew Snyder wrote in the letter, using an acronym for designated state health programs.

CMS called out several of New York’s designated state health programs in a press release about the policy change, specifically pointing to $11 million for a labor union to reduce costs of health insurance for certain child care providers and $3.8 million for a diversity in medicine initiative.

Why it matters: The announcement was no surprise to state Medicaid directors given that CMS issued similar guidance during President Donald Trump’s first term. But it will likely have substantial financial ramifications for New York, whose section 1115 waiver expires in March 2027.

Under the current waiver, the state has authority to spend up to $7.5 billion on a demonstration program tackling health equity. Much of that is federal funding unlocked through the policy that the Trump administration is ending. Because CMS does not plan to renew that expenditure authority, the state will almost certainly lose any federal money it has not spent once the waiver expires in two years.

“The State Health Department remains committed to using its current federally approved 1115 waiver authority to improve health outcomes for eligible New Yorkers, while working to assess the impact this change may have on future 1115 waiver renewals,” department spokesperson Alicia Biggs said in a statement to POLITICO.

The expected impact is a dearth of federal resources going forward for innovative Medicaid projects, such as the ongoing New York Health Equity Reform initiative.

“States will need to rethink waiver strategies fast,” wrote Adam Herbst, a health care attorney who previously served as a state Health Department deputy commissioner, in a LinkedIn post about the CMS announcement. “This is a policy shift with real consequences for how we fund innovation, especially in places like New York.”

More context: The policy shift comes on the heels of a contentious legal battle between New York and the Trump administration over $400 million in federal grants clawed back earlier this month by the Department of Health and Human Services.

The state Department of Health, Office of Mental Health and Office of Addiction Services and Supports are collectively slated to lose $300 million, while the New York City Department of Health and Mental Hygiene stands to lose $100 million.

State Health Commissioner James McDonald said those cuts forced his agency to lay off more than 50 state employees.

What’s next: The letter said CMS is available to consult with state officials who believe their designated state health programs qualify for federal matching funds.