Medicaid Expansion & Budget Neutrality

April 14, 2021


Elizabeth (Izzy) Montgomery, MPA
Policy Analyst

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In March 2021, the Arkansas General Assembly passed legislation to continue the state’s novel approach to Medicaid expansion through a new program known as Arkansas Health and Opportunity for Me (ARHOME). Arkansas’s use of a premium-assistance model to finance healthcare coverage for low-income Arkansans has brought praise from health advocates for its innovative approach, replication from other states seeking an alternative to traditional Medicaid expansion, and scrutiny from proponents of cost containment.

Arkansas’s model – currently known as Arkansas Works – required a federally approved Section 1115 demonstration waiver for implementation. Demonstration waivers under Section 1115 of the Social Security Act provide states with federal matching funds for projects that test new approaches in how Medicaid programs operate. A requirement that must be demonstrated prior to waiver approval is budget neutrality, which means that the cost of the waiver program cannot exceed federal spending that would have occurred absent the waiver. This updated explainer provides general information about budget neutrality and how it is assessed, budget cap trends in recent years, and other observations as the state seeks a waiver for ARHOME.


  1. (March 5, 2018). Arkansas Works Section 1115 Demonstration Fact Sheet. Retrieved from
  2. MACPAC. Section 1115 Research and Demonstration Waivers. Accessed March 13, 2021. Retrieved from
  3. Rudowitz, R., et al. (October 9, 2013). A Look at Section 1115 Medicaid Demonstration Waivers Under the ACA: A Focus on Childless Adults. Kaiser Family Foundation. Retrieved from
  4. U.S. Government Accountability Office. (Aug. 8, 2014). Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost Concerns. Retrieved from
  5. Centers for Medicare and Medicaid Services. (September 2013). Arkansas 1115 Waiver Terms and Conditions.
  6. Arkansas Department of Human Services. (December 2020). Monthly Enrollment and Expenditures Report – Calendar Year 2020.
  7. Arkansas Department of Human Services. Arkansas Works Section 1115 Waiver Demonstration Waiver Annual Report January 1, 2018”’December 31, 2018.
  8. Arkansas Department of Human Services. Arkansas Works Section 1115 Waiver Demonstration Waiver Annual Report January 1, 2019-December 31, 2019.
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