In late September, Gov. Bill Lee (R) submitted a draft proposal to the Trump administration requesting the government convert the federal share of the state’s Medicaid funding into a $7.9 billion lump sum.
Under the proposal, the federal spending cap would apply to currently eligible children and adults, patients covered based on disability, and currently eligible seniors, but not to newly eligible patients, prescription drugs, dually eligible enrollees, and reimbursement to disproportionate-share hospitals and critical access hospitals. The proposed block grant would increase on a per capita basis for new patients and would adjust annually for inflation.
Gov. Lee contends the block grant would allow for more efficiency in the state’s Medicaid program – called TennCare – and generate significant savings, which the state would split 50/50 with the federal government, according to the proposal.
“The traditional model of Medicaid financing is an outdated model of fundamentally misaligned incentives,” Gov. Lee said in the waiver request. “New models of Medicaid financing are needed that reward states for promoting value and health, not merely spending more money. Tennessee’s Medicaid block grant proposal represents a natural progression of the state’s history of nationally recognized innovation and financial management. It also ensures that TennCare members continue to receive high-quality, cost-effective care well into the future.”
Doug Badger
Tennessee’s proposal aims to provide care to low-income recipients more efficiently, while breaking Medicaid’s “perverse dynamic” in which states seek to extract more money from the federal government, said Doug Badger, a visiting fellow in domestic policy studies at the conservative-leaning Heritage Foundation.
“The waiver would incentivize Tennessee to reduce federal spending while maintaining access to care,” Mr. Badger said in an interview. “It is an idea worth testing. Tennessee will have to convince federal officials that its proposal would maintain quality of care without increasing federal spending. If they clear those hurdles, the federal government should approve the waiver.”
However, Dan Hawkins, senior vice president for public policy and research at the nonpartisan National Association of Community Health Centers said the proposal contains some concerning omissions and extreme demands that could affect access to care. For instance, the waiver calls for complete exemption from federal Medicaid requirements, including managed care rules that ensure access and network adequacy protections, pregnancy care rules, requirements pertaining to the treatment of disabled adults and children, and early and periodic screening, diagnostic, and treatment (EPSDT) requirements. Under the waiver, the state would no longer be subject to federal oversight for its enrollment, coverage, or management decisions.
“The most shocking thing is that [Tennessee has] provided no estimate of impact on the population served, either in terms of their health or their ability to access care or the amount of money it would cost to serve them,” Mr. Hawkins said in an interview. “They are essentially saying, ‘Send [the block grant] to us and go away.’ ”
Andy Schneider
Without the federal protections, Tennessee could take any number of measures to reduce costs, adds Andy Schneider a research professor at Georgetown University and an analyst for Georgetown University Health Policy Institute’s Center for Children and Families, both in Washington. Mr. Schneider served as a senior advisor at the Centers for Medicare & Medicaid Services under the Obama administration.
“What would the state do in a world where it no longer had to follow federal rules in contracting with risk-based managed care organizations [MCOs] and in a world where it wanted to save money?” Mr. Schneider said in an interview. “Well, without the federal protections, it could reduce its payments on behalf of enrolled beneficiaries to the MCOs, it could not require the MCOs to have adequate provider networks, not require the MCOs to describe what services they were or were not providing, it could eliminate appeals protections for beneficiaries. Just let your imagination run wild.”
It is uncertain whether the waiver will be approved. Mr. Hawkins noted that CMS leadership has expressed support for the notion of a block grant. In his 2020 fiscal year federal budget for example, President Trump proposed a number of changes to Medicaid, including the potential for state Medicaid block grants or per capita caps. The Office of Management and Budget, meanwhile, is currently preparing guidance for state governments on creating block grants for Medicaid.
“On the other hand, this proposal is so outrageous I have to believe that even the federal government, even CMS, would blanch and come back requiring some additional changes in return for approving the proposal,” Mr. Hawkins said.
Mr. Schneider believes if the block grant is approved, it will likely face immediate litigation.
“The Department of Health & Human Services does not have the authority to give the state a block grant, only Congress can do that,” said Mr. Schneider who recently blogged about the proposal. “The reason for that is that, as the state makes clear in its proposal, it wants to reimagine the traditional Medicaid financing arrangement. That traditional financing arrangement has been in place since 1965. The executive branch can’t [change] it. It simply does not have the authority.”
Mr. Badger emphasized there is no shortage of speculation about the impact of fixed Medicaid allotments. What is needed now, he said, is evidence.
“A well-designed demonstration project will yield that evidence,” he said. “The statute gives the [HHS] Secretary authority to authorize demonstrations precisely to replace speculation with data. The best way to assess the impact of a fixed allotment is to test it in the real world.”
Tennessee will hold public hearings about its proposal in early October and collect feedback through Oct. 18. A final proposal is expected in November.