On June 11, 2026, CMS released State Medicaid Director Letter (SMDL) #26-003, Budget Neutrality and Certification by the Chief Actuary of CMS for Section 1115 Medicaid Demonstration Projects. The letter implements and interprets Section 71118 of H.R. 1, which adds budget neutrality as a statutory requirement for Medicaid 1115 demonstration projects, effective for demonstrations approved on or after January 1, 2027.

While CMS intends to release a proposed rule on Section 1115 budget neutrality later this year, the SMDL serves as a preview of the key elements to be included in that proposed rule to assist states with preparation and implementation.

Sellers Dorsey summarized the SMDL, including key provisions, implementation considerations, and potential impacts.