CMS Issues State Medicaid Director Letter #26-003 — Chief Actuary Must Certify Section 1115 Demonstrations Won't Increase Federal Spending Starting Jan. 1, 2027

On June 11, 2026, CMS released State Medicaid Director Letter #26-003, giving states early notice of a new statutory requirement (Section 71118 of H.R. 1, the law also referred to as the Working Families Tax Cut Act) that the CMS Chief Actuary must certify that new, renewed, or amended Section 1115 Medicaid demonstrations approved on or after January 1, 2027 will not increase federal Medicaid spending.

The letter replaces the historical 'without waiver' expenditure-cap budget-neutrality model with a stricter no-increase standard and a more rigorous, individualized financial-impact analysis for each 1115-only activity. CMS followed on July 7 with a bulletin formally rescinding its 2015 'fast-track' review process for certain 1115 extensions, citing the new actuarial requirement.

For California, this narrows the room available when CalAIM's Section 1115 waiver — which funds Enhanced Care Management and Community Supports that many FQHCs bill through managed-care plans — comes up for renewal ahead of its December 31, 2026 expiration; states with 2027 renewals in the pipeline should expect added actuarial documentation burden.