CMS to Cut Two Programs Related to Section 1115 Medicaid Waivers

The Centers for Medicare & Medicaid Services (CMS) under the Trump administration is cutting Medicaid-related programs that address health-related social needs or bolster healthcare infrastructure. It says this spending duplicates resources available through other federal and state programs or isn’t directly tied to healthcare services.

These designated state health programs (DSHPs) and designated state investment programs (DSIPs) have become something of a political football. In 2017, under the first Trump administration, CMS announced that it would no longer accept new or renewing proposals for DSHP funding, noting that they had been used as a financing mechanism in Section 1115 Demonstrations, rather than a tool to drive reform. However, in 2020, under the Biden administration, CMS reversed this policy and introduced new conditions of DSHP funding, similar to those placed on health-related social need (HRSN) initiatives, according to a report by ATI Advisory. 

ATI Advisory gave examples of how the DSHP funding has been used: Oregon has used funding services to support Youth with Special Healthcare Needs and health-related social needs services and infrastructure including housing, nutrition, and continuous eligibility. California is funding infrastructure building for pre-release services (for individuals transitioning out of incarceration), Enhanced Care Management (ECM) services, and Community Supports.

Now CMS has sent a letter to states notifying them that it does not intend to approve new or extend existing requests for federal matching funds for state expenditures on DSHPs and DSIPs. These are state-funded health programs that, without “creative interpretations” of Section 1115 demonstration authority, would not have qualified for federal Medicaid funding, CMS said in a news release.

CMS said the mounting expenditure from these efforts “distracts from the core mission of Medicaid, and in some instances, serves as an overly-creative financing mechanism to skirt state budget responsibilities.”

DSHPs and DSIPs have grown from approximately $886 million in 2019 to nearly $2.7 billion in eligible expenditures in 2025, CMS noted. It gave examples of projects funded under the program that don’t align with the Trump agenda, such as $3.8 million for a diversity-in-medicine initiative in New York and $20 million in grants to high-speed internet for rural healthcare providers in North Carolina. Another example is $241 million for a program in New York for non-medical in-home services, such as housekeeping.

CMS said it will continue to work with states on Section 1115 demonstrations, as long as they are more narrowly focused on improving health outcomes of people on Medicaid.