Fact Sheets

Healthy Adult Opportunity Fact Sheet

Healthy Adult Opportunity

The Centers for Medicare & Medicaid Services (CMS) is announcing a new opportunity to support states with greater flexibility to improve the health of their Medicaid populations. The Healthy Adult Opportunity (HAO) emphasizes the concept of value-based care while granting states with extensive flexibility to administer and design their programs within a defined budget. This state opportunity will enhance the Medicaid program’s integrity through its focus on accountability for results and quality improvement, making the Medicaid program stronger for states and beneficiaries.

Beneficiary Protections

HAO is available to all states, with a focus on a limited population – adults under age 65 who are not eligible for Medicaid on the basis of disability or their need for long term care services and supports, and who are not eligible under a state plan. Other very low-income parents, children, pregnant women, elderly adults, and people eligible on the basis of a disability will not be directly affected – except from the improvements that result from states reinvesting savings into strengthening their overall programs. Under HAO, beneficiaries will maintain all of the federal due process and civil rights they have today, and HAO demonstrations will be expected to provide minimum benefit standards, eligibility protections, and limits on out of pocket expenses. Specifically, the guidance articulates the key beneficiary protections that states will be required to adhere to, and standards that states will be expected to meet, including:

  • Following all federal disability and civil rights laws,
  • Following a public and beneficiary notice process, and providing for fair hearing rights,
  • Providing regular and ongoing reporting on key performance metrics,
  • Providing key statutory protections for tribal beneficiaries,
  • Maintaining benefits that at a minimum meet the Essential Health Benefits (EHB) standard,
  • Ensuring access to medications for people with HIV or behavioral health needs; and 
  • Ensuring that the aggregate limit on premiums and cost sharing does not exceed 5% of family income.

Flexibilities Available Under the Healthy Adult Opportunity 

The HAO will involve the use of section 1115(a)(2) authority to provide coverage to adults not eligible for benefits under the state’s Medicaid state plan, while affording states significant flexibility in the administration of benefits for such individuals.  For the first time, CMS is offering flexibilities currently available to states in a comprehensive suite of pre-packaged waiver authorities. This will give states, if they choose it, the opportunity to propose commonly requested authority for participating populations, including the ability to:

  • Adjust cost-sharing requirements to incentivize high value care,
  • Align benefits more closely to what is available through a commercial insurance benefit package,
  • Improve negotiating power to lower drug costs by adopting a closed formulary similar to those provided in the commercial market (see section below for more detail),
  • Make timely programmatic adjustments without additional federal approval,
  • Apply additional conditions of eligibility which support the objectives of the program,
  • Deliver care through innovative delivery systems, and
  • Waiving retroactive coverage and hospital presumptive eligibility requirements.


Demonstration applications submitted under the HAO are subject to all relevant public notice and transparency requirements associated with section 1115 demonstrations, and where applicable, states will be required to comply with the state’s tribal consultation process and describe how the state is responding to comments received through the tribal consultation process.  States will have flexibility to make many program adjustments within their approved authority without additional federal approval, but certain changes may also require beneficiary notice and transparency.

CMS is providing states with an application template that will simplify the process and guide states on the full range of policy decisions, making it much more straightforward for states to apply for all of the flexibilities available under this demonstration.

HAO demonstrations generally will be approved for an initial five-year period from the date of implementation, and successful demonstrations may be renewed for a period of up to 10 years.  Additional information on the HAO application and approval process, including a schedule of deliverables for the demonstration is available at

Financing and Program Integrity

States participating in HAO demonstrations will need to agree to operate their program within a defined budget target, set on either a total expenses or per-enrollee basis, in a manner similar to that used in other section 1115 demonstrations.  Total expenditures for covered populations in excess of the annual budget will not be eligible for Federal Financial Participation.  The targets will be negotiated based on the state’s own historic costs and other factors like national and regional trends. The financial parameters will be tied to inflation and adjustments may be made for extraordinary events. CMS will closely work with states to set a realistic baseline.

Under the total expenses model, CMS will calculate a base year amount using prior year expenditures based on the populations and benefits included in the state’s demonstration. CMS will trend this amount forward to each demonstration year without regard to changes in Medicaid enrollment. While available funding will be capped in the aggregate, states will not have the ability to cap enrollment and still receive the enhanced federal match rate available to the expansion population.  States agreeing to the total expense model will be required to maintain spending on health services at a level at least 80% of the target amount. To the extent they achieve savings and demonstrate no declines in access or quality, CMS will share back a portion of the federal savings for reinvestment into Medicaid. The amount of shared savings available for reinvestment would increase based on commensurate improvements in quality and access measures.

Under the per enrollee model, CMS will determine a per enrollee base amount for each eligibility group included in the demonstration using prior year expenditures.  If prior year expenditures for the covered population are unavailable, the base year amount will be determined initially considering national/regional expenditures and other relevant information, and will be subject to rebasing to ensure accuracy.  CMS will trend each group’s base amount forward to the demonstration year and then multiply the trended base amount by the number of enrollees for that year. The amount for each group will be added together to create an overall per capita cap. Therefore, the per-enrollee budget amount will fluctuate based on enrollment, while the aggregate cap budget amount will not.

Under both models, states will be required to participate in program integrity and financial oversight activities to ensure they continue to make accurate eligibility determinations and receive appropriate federal funds for covered populations. While total federal funding will be capped, the HAO does not change the need for states to submit claims reflecting actual expenditures to obtain federal matching funds for the Medicaid program. States will also be required to provide quarterly and annual expenditure reports to demonstrate their financial performance relative to their budget agreement.

Eligibility and Enrollment Processes

HAO is available to all states, with a focus on a limited population – adults under age 65 who are not eligible for Medicaid on the basis of disability or on their need for long term care services and supports, and who are not eligible under a state plan. States choosing to apply for an HAO demonstration will have flexibility to propose to set the income standard for eligibility under an HAO, as well as to change the standard over the course of the demonstration, consistent with approved terms and conditions. States may also propose to target coverage to a defined subset of high need individuals, such as individuals with severe mental illness, individuals needing treatment for substance use disorder, or individuals with HIV/AIDS.

However, consistent with current policy, an income standard of at least 133 percent FPL and eligibility for all individuals described in the adult group is required in order for states to be eligible for the enhanced FMAP available for this population under the statute. States will still have the flexibilities to propose additional conditions of eligibility, such as community engagement requirements, that are consistent with the objectives of the Medicaid program.  Additional flexibilities available for states to propose include, but are not limited to, the ability to not provide retroactive coverage or hospital presumptive eligibility.

As part of this demonstration, states may develop eligibility and enrollment policies, which will improve upon the administrative efficiency of these processes, e.g., by periodically checking electronic data sources between regular eligibility renewals; however, the federal requirements governing these fundamental components of states’ eligibility and enrollment systems will apply to coverage under an HAO.

Benefit Design and Drug Coverage

States have the opportunity to design a benefit package that aligns with private coverage.  At a minimum, proposed benefit design under an HAO should include Essential Health Benefits (EHB), defined using the requirements that apply under the law to the individual health insurance market, or benefits that meet larger health reform and Medicaid objectives.  The EHB approach promotes coverage of important services such as mental health and substance use services and a minimum level of prevention services that are otherwise optional in traditional Medicaid.  States will have the opportunity to design Federally Qualified Health Center (FQHC) coverage and payment in order to facilitate the use of value-based payment design among safety-net providers.

In order to provide states with greater negotiating power to lower drug spending and promote value in the program, states will have the opportunity to design formularies under an HAO consistent with those provided in Exchange coverage in the commercial health insurance markets. That is, coverage would be at least the greater of one drug in each U.S. Pharmacopeia (USP) category and class or the same number of prescription drugs in each category and class as the benefit package the state is using to define Essential Health Benefits (EHBs).

In addition, states will be expected to apply certain beneficiary protections for people with HIV and behavioral health conditions. These include: coverage of (1) substantially all drugs for mental health (that is, antipsychotics and antidepressants) consistent with Medicare Part D coverage; (2) substantially all antiretroviral drugs (including PrEP) consistent with Medicare Part D coverage, and (3) all forms, formulations, and delivery mechanisms for drugs approved by the Food and Drug Administration (FDA) to treat Opioid Use Disorders (OUDs) for which there are rebate agreements in place with the manufacturers.

Managed Care and Delivery Systems

CMS encourages states applying for this demonstration to implement evidence-based payment and delivery system reforms in order to achieve compliance with the quality and cost goals.  In general, states will be able to use any combination of fee-for-service and managed care delivery systems and will have flexibility to alter these arrangements over the course of the demonstration, as long as certain guidelines are met.  As part of the application, states will need to explain the payment or delivery system reforms they plan to use under the HAO.

States will be given the option in the application for an HAO demonstration to elect one of two options to measure and monitor access and availability of Medicaid services in a managed care delivery system.  States generally will be expected to meet specified managed care statutory requirements that provide beneficiary protections, facilitate beneficiary decision making, support access to services, monitor program administration, and measure the quality of the delivery system.  For example, states will be expected to certify that their managed care plans have the capacity to meet the state’s standards for access to care and availability of services.  However, states will have flexibility under this demonstration to propose alternative approaches to ensure network adequacy, access to care, and availability of services to those required in current federal regulations. The state would need to develop and propose alternative standards subject to CMS approval and provide reasonable evidence of enrollee access to care and satisfaction. Regardless of the approach elected, all states participating in the HAO will be required to submit routine data reports described in the Monitoring and Evaluation section of the guidance.

Streamlined Application Process Transitioning Demonstrations

CMS is releasing a simplified application template that will guide states on the full range of policy decisions, making it easier for states to apply for the flexibilities under this demonstration.  The template will still allow states and CMS to collect necessary information for robust public input.

The application template includes a set of standards related to compliance requirements typical of 1115 demonstrations. Those standards will be incorporated into the demonstration’s special terms and conditions (STCs).  After an application is approved, the state will submit an implementation plan, containing detail, consistent with the STCs, on how the state plans to implement the flexibilities authorized under the STCs, for CMS approval.

States with existing or pending section 1115 demonstrations that cover populations eligible to be covered in the HAO may also propose to transition coverage and other features of an existing demonstration or application into the HAO.  The application template provided by CMS will accommodate such proposed transitions. CMS will work with states interested in such a transition to ensure a seamless conversion of coverage into the HAO.

Quality Strategy and Performance Assessment

With the significant flexibility afforded under this demonstration opportunity, states will be held to a high standard of accountability for producing positive health outcomes and will be subject to regular and thorough monitoring and evaluation.  The HAO initiative includes several components to ensure this accountability.  Each state will submit for CMS approval a written quality strategy and performance assessment – including measurable goals and measures, baselines and targets, interventions and rapid-cycle assessment and continuous quality improvement – for assessing coverage, access to care, quality of care, and the health outcomes of beneficiaries covered under the demonstration.  Participating states also will be required to report 25 quality and access measures drawn from the CMS Adult Core Set, which are currently optional for states to report.  These measures include, but are not limited to:

  • Flu vaccinations
  • Screening for depression and follow-up care
  • Prenatal and postpartum care
  • Controlling high blood pressure
  • Comprehensive diabetes care
  • HIV viral load suppression
  • Follow-up after hospitalization for mental illness

A complete list of the 25 measures are found in Appendix D of the guidance.

In addition, states operating an HAO will be expected to report quarterly on a set of continuous performance indicators identified by CMS (relating to enrollment, retention, access to care, and financial management) which will provide a timely indication of potential issues impacting beneficiary access to coverage or care so that needed adjustments can be made. These include measures like:

  • Number of providers actively enrolled and seeing patients
  • Complaints regarding difficulty in accessing timely services
  • Total emergency department visits per month, including for non-emergency reasons, which can be an indicator of poor primary care access
  • Retention of beneficiaries at renewal
  • Number of appeals for eligibility or service denials
  • Number of grievances filed
  • Claims processing timeliness and rate of denials

The guidance and additional information on the HAO initiative is available on