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September 19, 2019

Tennessee has a first-in-the-nation plan to convert Medicaid into a block grant

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    Tennessee on Tuesday released a draft Medicaid waiver proposal to convert the state's Medicaid financing structure from an open-ended federal funding system into a fixed block-grant system.

    How Medicaid compares to a block-grant system

    Medicaid is currently funded through a federal/state matching program in which the federal government reimburses states at a set rate for every dollar spent on Medicaid. This rate varies from state to state, ranging from 50% to 75% based on a state's per-capita income and other criteria.

    This means that as state expenses increase, as a result of greater enrollment (such as when more people become eligible due to a recession or eligibility expansion) or higher program costs (such as from a public health crisis, costly new medicines, or rate hikes), federal funds automatically rise to match state spending. Under the current model, there is no limit on the total amount of federal dollars available to the states to cover Medicaid expenses.

    In comparison, under a block-grant system, the federal government would provide states with a lump-sum of funding based on certain metrics, such as how many people are enrolled in a state's Medicaid program. Such a program essentially would cap how much the federal government gives to states for the Medicaid programs over a given time.

    Critics of block grants have argued that states would receive less federal funding for Medicaid under such system, because federal funding no longer would increase alongside state spending on Medicaid. Critics also have said transitioning to block grants might mean states have less funding available during economic downturns or other periods in which Medicaid enrollment grows rapidly.

    However, state officials who support block grants have said a lump-sum grant would allow them to have more freedom to administer their state Medicaid programs in a manner that would generate savings.

    The Trump administration also has pushed for Medicaid block grants. President Trump in his fiscal year 2020 budget proposal called for a nationwide shift to Medicaid block grants, and CMS Administrator Seema Verma also has urged states to move to block-grant systems.

    Tennessee's proposal

    Tennessee's draft Medicaid waiver would convert the state's Medicaid financing structure from the current open-ended federal financing system to a block-grant system. The federal government would annually adjust the funding it provides in the block grant based on inflation and would increase block-grant funding on a per capita basis when the state's Medicaid enrollment grows above the level used to calculate the initial grant amount, according to the Wall Street Journal.

    State officials said the proposal would allow Tennessee to keep any unspent federal funds and the federal government to share in any savings the state generates by spending less in a given year than what it would have under the traditional Medicaid system.

    The proposal's funding cap would apply to more than one million of the state's 1.4 million Medicaid beneficiaries, including blind beneficiaries, children, disabled beneficiaries, parents, pregnant women, and other core groups. The cap would not apply to new Medicaid beneficiaries, who initially would be covered under the state's traditional Medicaid funding system. The state's proposal also requests that the cap not apply to:

    • Outpatient prescription drugs;
    • Payments for beneficiaries dually enrolled in Medicare and Medicaid; and
    • Payments to hospitals serving a large number of low-income patients.

    Under the proposal, state officials also would request additional flexibility in how the state administers its Medicaid program. For instance, state officials would ask the federal government for the authority to alter the "amount, duration, and scope" of Medicaid benefits that the state provides, as long as the changes do not affect the "overall sufficiency" of the benefits, without first getting CMS' approval.

    The draft waiver also would ask that Tennessee's Medicaid program:

    • Be exempt from the federal government's Medicaid managed care regulations;
    • Expand the list of "items or services" the state's Medicaid program is allowed to cover using federal funds to include items and services not currently covered under federal Medicaid law; and
    • Exclude certain prescription drugs from Medicaid's formulary.

    State officials said the proposal would not affect the state's current eligibility requirements or benefits for Medicaid.

    In addition, the proposal would allow hospitals to receive additional money from the state's two uncompensated care funds, as long as the hospitals treat patients in low-cost settings or implement other systemic changes to lower spending.

    Next steps

    The draft Medicaid waiver request is now up for a 30-day public comment period, which is scheduled to end on Oct. 18. State officials plan to submit the proposal to CMS by Nov. 20.

    Tennessee Gov. Bill Lee (R) on Tuesday said the Trump administration "need[s] some examples to show the rest of the country how to do this, and we have an example." He added, "We're pursuing what we believe the … administration wants us to pursue. Their goal is to give block-grant programs that deliver efficiency and innovation of services. If that happens across the country, the cost of Medicaid is lowered."

    However, it's not yet clear if CMS will approve the request. Gabe Roberts, director of Tennessee's Medicaid program, said he and his staff have discussed their proposal with CMS officials, but they have not received feedback.

    CMS spokesperson Johnathan Monroe declined to comment on the agency's discussions with Tennessee officials, the Post reports. He said, "CMS supports efforts to improve accountability for cost and outcomes in Medicaid, and we look forward to working with Tennessee once they submit their proposal to help them achieve these goals as effectively as possible within our statutory authority."


    If CMS ultimately approves Tennessee's proposal, it could set the stage for other states to seek waiver to convert their Medicaid programs to block-grant systems, the Post reports.

    But observers are divided as to how such a proposal would affect future Medicaid funding.

    Tennessee Hospital Association CEO Craig Becker said he is cautiously optimistic about the proposal, Modern Healthcare reports. Becker said the association's member hospitals have not raised many concerns over the proposal. He said the proposal could mean hospitals receive additional funding without reducing the number of state residents enrolled in Tennessee's Medicaid program.

    Melinda Buntin, chair and professor of health policy at Vanderbilt University Medical Center, expressed optimism, noting the capped Medicaid payments would not affect all Medicaid beneficiaries, including children with complex health conditions. She estimated the proposed caps would range from one-half to two-thirds of the current Medicaid cost for affected beneficiaries.

    JD Hickey, CEO of BlueCross Tennessee, said, "We believe this proposal has the potential to serve more Tennesseans, while improving their health care and protecting the state's financial well-being."

    However, Michele Johnson—executive director of the Tennessee Justice Center, which represents individuals who need health care and other assistance—said the proposal would be "devastating for our health infrastructure, for the Tennessee economy, and for our communities." Johnson added that the draft Medicaid waiver request's proposal to provide hospitals with additional funding "seems to be a way to keep hospitals quiet. But the bottom line is … the Trump administration wants to take $1 trillion out of Medicaid" (Armour, Wall Street Journal, 9/17; Goldstein, Washington Post, 9/17; Luthi, Modern Healthcare, 9/17; Owens, "Vitals," Axios, 9/17).

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