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Tennessee Seeks Federal Approval to Block Grant Medicaid Program

Nov. 20, 2019, 10:24 PM

Tennessee could become the nation’s latest health-care legal battleground after the state formally asked the Trump administration to convert most of the federal funding for its state Medicaid program into a modified block grant.

If granted, the proposal, filed with the Health and Human Services Department on Nov. 20, would end Medicaid’s 54-year run as an open-ended entitlement program that provides health care for all eligible low-income and disabled applicants. Tennessee announced the broad outlines of the plan in September, but it’s official submission to the government offers far more detail.

Opponents fear the proposed waiver of Medicare rules will encourage more states to seek block grant funding in order to cut their Medicaid spending. The state and federally funded Medicaid program is one of the largest components of most state budgets, along with education. Tennessee state officials say their proposal would lead to greater efficiencies, less waste, and better health for Medicaid’s estimated 1.4 million beneficiaries.

If approved by the Centers for Medicare & Medicaid Services, the block grant proposal will likely face a legal challenge. Opponents might claim the proposal doesn’t meet a basic requirement of the waiver program: to further the objectives of Medicaid, such as improving coverage, health outcomes, and access to providers.

While Tennessee officials have warned that their goal is not to cut Medicaid benefits and services, opponents are skeptical.

If federal block grants don’t keep pace with rising medical costs and enrollment increases during economic downturns, states could end up with less federal funding over time.

That could force states to either pay a larger share of Medicaid program costs or reduce access to care through cuts in services, reduced eligibility, payment cuts to caregivers, or greater cost-sharing for enrollees.

Alaska has studied the potential effects of a federal block grant to fund its expanded Medicaid program since May. In July, Utah asked the Trump administration if it could partially expand its Medicaid using a block grant-like funding cap. The Centers for Medicare & Medicaid Services—the agency that reviews the requests—denied it.

Lump Sum Funds

Under the current funding formula, Medicaid provides unlimited federal funding that grows and shrinks, depending on need. Tennessee wants $7.9 billion of its federal Medicaid funding delivered as a lump sum “block grant” that would be adjusted annually for inflation under Tennessee Gov. Bill Lee’s (R) proposal.

if the proposal saves money over the current funding formula, any savings would be split between Tennessee and the federal government. Lee has estimated that could provide Tennessee more than $1 billion annually.

In exchange, the state wants to be exempted from federal Medicaid program mandates dealing with program eligibility, benefits, coverage, enrollment, and other requirements throughout the funding experiment.

“It is expected that Tennessee will be exempt from any new federal mandates over the life of the demonstration that could have a material impact on the state’s Medicaid expenditures (e.g., mandates concerning eligibility or covered benefits),” the proposal stated.

“We’re asking CMS to reimagine the federal state funding mechanism that we currently enjoy. This is not a traditional block grant approach. You can call it a ‘modified approach,’ maybe a ‘hybrid approach,’” TennCare Director Gabe Roberts told an audience at the Kaiser Family Foundation in Washington, D.C., on Oct. 18.

The Trump administration signaled its support for block granting Medicaid in its 2020 budget proposal in March.

“The administration recognizes that the only way to reform Medicaid and set it on a sound fiscal path is by putting states on equal footing with the federal government to implement comprehensive Medicaid financing reform through a per capita cap or block grant,” the document said.

On Nov. 15, the Trump administration withdrew a proposal that would have created new rules allowing states to cap federal funding for their Medicaid programs through a federal waiver. The proposed guidance was under consideration by the White House Office of Management and Budget when it was withdrawn.

CMS Administrator Seema Verma told the National Association of Medicaid Directors on Nov. 11 that the new regulations would soon be forthcoming. The CMS said Nov. 18 that Verma’s comments are still accurate, but the agency did not provide any details on why the proposal was withdrawn.

To contact the reporter on this story: Tony Pugh in Washington at tpugh@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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