CMS Approves First-in-Nation Justice-Involved Reentry Section 1115 Demonstration

The Big Picture

On January 26, 2023, the Centers for Medicare & Medicaid Services (CMS) approved California’s request to amend the California Advancing and Innovating Medi-Cal (CalAIM) Section 1115 demonstration. A centerpiece of the amendment is approval for California Medicaid to provide a targeted set of Medicaid services to youth and adults in state prisons, county jails, and youth correctional facilities for up to 90 days prior to release. By providing reentry services to Medicaid-enrolled individuals who are incarcerated, California aims to build a bridge to community-based care for justice-involved enrollees, offering them services to stabilize their physical and behavioral health conditions and establishing, prior to release, a reentry plan for their community-based care. With this 1115 demonstration, California will directly test and evaluate its expectation that providing targeted reentry services to Medicaid-eligible individuals will increase coverage and continuity of coverage, improve care transitions as individuals reenter the community, and reduce morbidity and mortality for beneficiaries post-release.

California is the first state in the nation to get federal authority to offer a targeted set of Medicaid services to incarcerated beneficiaries. Due to a provision of federal Medicaid law known as the “inmate exclusion,” without a waiver, inpatient hospital care is the only service that can be covered by Medicaid for individuals considered an “inmate of a public institution.”¹ CMS’ approval allows California to provide targeted services with Medicaid financing.

The majority of incarcerated individuals in Medicaid expansion states would be eligible for Medicaid if not for their incarcerated status. As part of the special terms and conditions (STCs) of California’s demonstration approval the state has also committed to set up a process to ensure that individuals in the carceral setting have an opportunity to apply for Medicaid prior to release. Without Medicaid coverage and a standard process to connect justice-involved beneficiaries to community-based providers upon release, many individuals lose access to the health care services they received while they were incarcerated, leading to disproportionately higher rates of physical and behavioral health diagnoses and higher risks of injury or death when compared with people who have never been incarcerated.

Recognizing the need for intervention, Congress passed the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act) in 2018, requiring the Department of Health and Human Services (HHS) to provide guidance to states on how to seek 1115 demonstration authority to waive the inmate exclusion in order to improve care transitions to the community for incarcerated individuals. In parallel to California’s demonstration approval, the Assistant Secretary for Planning and Evaluation released a Report to Congress, as required by the SUPPORT Act, on best practices for health care transistions for the justice-involved population. HHS’ guidance on how to seek 1115 demonstration authority is still in development, but CMS’ action to approve California’s proposal and STCs for the approval are strong indications of the flexibility and requirements CMS intends to outline in the guidance. More than a dozen other states have waiver proposals pending with CMS to provide services to justice-involved Medicaid enrollees.

Features of the Justice-Involved Reentry Initiative

California’s Section 1115 demonstration approval, coming in advance of the expected guidance, serves as a blueprint for other states requesting waiver authority to provide reentry services to their justice-involved populations. Specifically, California’s approval outlines the following:

• Eligible populations: Medicaid-eligible youth and adults in state prisons, county jails, or youth correctional facilities are potentially eligible for the targeted reentry services. Enrollees in state prisons and county jails will be required to meet health need criteria² to be eligible for these services; all youth in youth correctional facilities will be considered eligible without needing to meet the health criteria need. Eligible enrollees can be either pre- or post-adjudication. By including health conditions beyond mental illness and substance use disorder, this approval signals that the forthcoming CMS guidance is likely to offer flexibility to states to define the parameters of their eligible populations.
• Eligible facilities: State prisons, county jails, and county youth correctional facilities will be required to facilitate the provision of reentry services.
• Scope of targeted reentry services: Targeted services will be anchored in care management and include physical and behavioral clinical consultation, lab and radiology, medication-assisted treatment (MAT), community health worker services, and medications and medication administration. In addition to the covered reentry services, individuals will receive medications and durable medical equipment upon release and will have a reentry care plan with a warm handoff to community-based providers.
• Duration of covered services: California will provide targeted Medicaid services for no more than 90 days prior to release. Notably, this is a longer time than the 30-day period referenced in the SUPPORT Act, signaling CMS’ willingness to provide flexibility on the duration of the reentry services. Many individuals in jails and youth correctional facilities have short lengths of stays and unpredictable release dates and, as such, will likely receive a more limited set of targeted reentry services.
• Implementation plan: California is required to submit a reentry demonstration initiative implementation plan to describe, at a minimum, the state’s approach to implementing the initiative, including timelines for meeting critical implementation stages or milestones, as applicable, to support successful implementation. The milestones outlined in the STCs include:
  1. Increasing coverage and ensuring continuity of coverage for individuals who are incarcerated
  2. Covering and ensuring access to the expected minimum set of reentry services for individuals who are incarcerated to improve care transitions upon return to the community 
  3. Promoting continuity of care to ensure access to services both pre- and post-release
  4. Connecting to services available post-release to meet the needs of the reentering population 
  5. Ensuring cross-system collaboration 
• Readiness assessments: In California, all prisons, jails, and youth correctional facilities will be required to demonstrate readiness to participate in the justice-involved reentry initiative prior to going live with the provision of reentry services.
• Reinvestment requirements: As outlined in the STCs, California will be required to submit a reinvestment plan that details the amount of reinvestment that will be required for all new federal dollars that cover services that are the responsibility of and were previously provided or paid for by the correctional facility.
• Capacity grants: In order to support capacity development and planning efforts across prisons, county jails, youth correctional facilities, probation offices, county behavioral health agencies, community-based providers, and other entities that will enable implementation of the justice-involved reentry initiative, CMS approved $410 million in capacity-building funds, referred to as Providing Access and Transforming Health (PATH) funding. This funding is intended to support eligible entities as they stand up processes, protocols, and IT system modifications that are necessary to implement or modify processes to support the provision of reentry services.

Additional Features of the CalAIM 1115 Demonstration Approval

Other notable parts of the demonstration approval include:

• Budget neutrality updates. As part of the amendment approval, CMS updated the budget neutrality policies for California’s demonstration to align with CMS’ recently established national budget neutrality framework.
• Health related service need (HRSN) approval updates. In December 2021, CMS approved two services to address “health related service needs” as part of the CalAIM 1115 demonstration renewal. In this amendment, CMS also updated the terms for these services to align with more recent approvals in other states, including to allow California to treat these services more favorably in budget neutrality calculations.
• Designated State Health Program (DSHP) financing. CMS also approved DSHP financing as part of the amendment, allowing California to receive federal Medicaid funding for certain programs that had been entirely state funded and then use the funds freed up to finance a large portion of the state’s share of the costs of the PATH initiative, which is a five-year, $1.85 billion initiative to build up the capacity and infrastructure of on-the-ground partners, including the newly approved $410 million for justice-involved partners as mentioned above.

Looking Ahead

There are currently 14 states with pending justice-involved reentry demonstration requests before CMS.³ While the demonstration requests vary in whom they propose to cover, who will provide services, and what covered services are included, all focus on improving health outcomes and supporting reentry into the community. Once CMS releases guidance on 1115 reentry demonstrations, California and any other state approved before the guidance is issued may need to adjust their demonstration features to align with the federal guidance. Further, there continues to be significant interest in how to leverage Medicaid to improve health outcomes for justice-involved populations, including from Congress, which passed two provisions in the Consolidated Appropriations Act, 2023 (CAA) that enhance states’ ability to provide Medicaid and CHIP services while a youth is incarcerated in a jail or prison.

_{¹ 42 C.F.R. 435.1009; 42 C.F.R 435.1010.}

_{² Adults must meet one of the following health need criteria: mental illness, substance use disorder, chronic condition/significant non-chronic clinical condition, intellectual or developmental disability, traumatic brain injury, HIV/AIDS, pregnant/postpartum.}

_{³ States include Arizona, Kentucky, Massachusetts, Montana, New Hampshire, New Jersey, New Mexico, New York, Oregon, Rhode Island, Utah, Vermont, Washington, and West Virginia.}