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Address correspondence to: Teresa A. Abstract Context States have long lobbied to be given more flexibility in designing their Medicaid programs, the nation's health insurance program for the low-income, the elderly, and individuals with disabilities.

The Bush administration and the Deficit Reduction Act of have put in place policies to make it easier to grant states this flexibility. Methods This article explores trends in states' Medicaid flexibility and discusses some of the implications for the program and its beneficiaries. The article uses government databases to identify the policy changes that have been implemented through waivers and state plan amendments.

Findings Since , more than half the states have changed their Medicaid programs, through either Medicaid waivers or provisions in the Deficit Reduction Act of These changes are in benefit flexibility, cost sharing, enrollment expansions and caps, privatization, and program financing. Conclusions With a few important exceptions, these changes have been fairly circumscribed, but despite their expressed interest, states have not yet fully used this flexibility for their Medicaid programs.

However, states may exercise this newly available flexibility if, for example, the nation's health care system is not reformed or an economic downturn creates fiscal pressures on states that must be addressed.

If this happens, the policies implemented during the Bush administration could lead to profound changes in Medicaid and could be carried out relatively easily. Medicaid, Medicaid reform, Medicaid waivers, Deficit Reduction Act of Medicaid is the nation's major public financing system that provides health care coverage to low-income families, the elderly, and individuals with disabilities.

Started in , Medicaid is an open-ended funding program in which the federal government and states share the cost of health insurance for beneficiaries so long as the states meet specific eligibility and benefit requirements. Within broad federal guidelines, states design their own Medicaid programs. Each state, for example, determines who will be eligible for coverage, what services will be covered, and how much providers will be paid for rendering care to Medicaid beneficiaries.

About 60 million Americans received some Medicaid coverage during Ellis et al. Over the last several years, virtually every dimension of Medicaid has been affected by changes that states have implemented. Among other things, various states have reduced or eliminated Medicaid benefits, capped program enrollment, and imposed premiums and other costs on beneficiaries.

At the same time, though, a few states have extended Medicaid to groups that had previously not been eligible for the program, such as childless adults. Some states have also broadened the role of the private marketplace in Medicaid by expanding managed care programs and offering premium assistance programs. Moreover, beginning in the early s, many states maximized federal Medicaid funds while reducing their share of matching contributions. But at the urging of the federal government, some states are now financing Medicaid differently and are now more likely to use actual state or local outlays to cover their share of program expenditures.

Many of these recent changes were brought about not through legislation but through waivers of federal requirements. Medicaid waivers allow the federal government, as a long-standing statutory authority, to permit states to alter their programs in ways not otherwise allowed under federal Medicaid law. These recent state Medicaid waivers cover a wide variety of initiatives, ranging from shifting beneficiaries to managed care, to expanding eligibility, to changing how payments to hospitals are made.

In addition, in February , President George W. Bush went beyond using the traditional waiver process to reshape Medicaid when he signed the Deficit Reduction Act DRA of , which included provisions granting states additional freedom in designing their Medicaid programs.

The DRA also included provisions allowing states to make changes in their programs more expeditiously than had previously been allowed Rosenbaum and Markus ; Rudowitz and Schneider In this article, we explore some of the recent Medicaid policies that states have adopted and discuss some of the implications that they have had for the program and its beneficiaries.

We consider changes in Medicaid related to benefit flexibility, cost sharing, enrollment expansions and caps, privatization, and program financing. Given the multitude and scope of the changes, our analysis is not exhaustive, but we have highlighted some of the more important ways in which Medicaid has been reshaped.

Background Using waivers to change the Medicaid program has been a major state health policy option under the Bush administration. Between and , for example, the Centers for Medicare and Medicaid Services CMS , the federal agency charged with administering Medicaid, approved Section waivers from over two-thirds of the states Thompson and Burke For several years, states have sought more freedom in the design of their Medicaid programs.

For example, they have argued that health care is a local matter and that they, not federal policymakers, are better able to understand their particular problems and thus are in a better position to craft efficient, effective health care programs that will meet the needs of their residents.

States also maintain that allowing flexibility will promote innovation and improvement in the Medicaid program, which will lead other states to follow. And states reason that by letting them experiment in testing new strategies, they will produce much needed information about what does and does not work. Not only will this help guide other states in their reform efforts, but it also will enhance national discussions of health care.

Critics, however, charge that if granted more authority in setting Medicaid policy, states, rather than behaving as laboratories of innovation, will pursue short-term goals e. Another argument against allowing more state flexibility is that it will only worsen the persistent inequities resulting from state-to-state variations in the program's benefits, eligibility standards, and spending Holahan Since , thirty-five states have made changes in their Medicaid programs through either the waivers or one of the new Medicaid DRA provisions.

Figure 1 summarizes these changes. While many are modest, others represent fundamental and important alterations to the Medicaid program. States have altered Medicaid by three main means:

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