Tennessee’s Medicaid Block Grant Proposal Will Hurt Families

This week, Tennessee released a proposal to block grant its Medicaid program based on legislation passed by state lawmakers this past spring. The proposal, entitled Amendment 42, is a radical restructuring of the state’s Medicaid program (TennCare) that will harm women, children, and elderly Tennesseans. If its proposal is approved by the Trump administration, the state would be given authority under section 1115 of the Social Security Act to waive statutory requirements for the financial structure of its Medicaid program. However, block granting Medicaid greatly exceeds what is allowable under section 1115 authority.

In addition to these legal problems, the proposal would be terrible for Medicaid beneficiaries. If approved it would create powerful budget pressure on Tennessee to make cuts to Medicaid eligibility and benefits and severely punish the state for trying to keep Medicaid spending in line with the growth of health care costs.

Block Grants are Bad Policy

A “block grant” is a fixed amount of money that the federal government gives to a state to run its Medicaid program, an amount that is typically less than what the state receives today. If the state’s Medicaid costs exceed the amount of the block grant, it will have to use its own funds to make up the difference or, more likely, cut provider rates and/or services for low-income people or take away their Medicaid coverage.

Block granting is not a new idea. The Trump Administration tried to have Congress create a similar structure for Medicaid in 2017—a “per capita cap”—as part of the effort to “repeal and replace” the Affordable Care Act. The profound destructiveness of capping federal Medicaid funds was one of the most important reasons that several Republicans joined with all Democrats in opposing that legislation. Puerto Rico’s experience with capped Medicaid funds also shows that capping federal funds is a dangerous proposition for state Medicaid programs. The block grant approach follows a predictable playbook—states receive greater “flexibility” in exchange for accepting less federal money. But the truth is, states already have considerable flexibility in running their Medicaid programs. The only new state flexibility in block grant proposals is the flexibility to make cuts they otherwise couldn’t make. The primary “flexibility” Tennessee seeks is the authority to roll back beneficiaries’ access to care without federal oversight.

This block grant approach is a risky financial gambit in which the only sure loser is the health and welfare of Medicaid beneficiaries.

Tennessee’s Approach

Tennessee is seeking approval from the federal government for the following primary elements under a proposed amendment to its existing Medicaid waiver.

• Ends the 50 Year Guarantee of a Federal Match: Under the statutory federal-state Medicaid financing framework, each state receives a federal match based on its Medicaid expenditures. Tennessee currently receives a 65.21% match from the federal government. This proposal rejects the federal government’s guarantee to match Tennessee’s actual Medicaid spending and replaces it with a block grant that puts the state at financial risk if spending exceeds the fixed amount.
• Rewards the State with Federal Dollars if it Cuts Enrollment: Unlike a traditional block grant, however, this proposal makes per-capita adjustments to the federal contribution based on enrollment trends. If enrollment exceeds 3-year average, then the block grant increases based on per capita cost per enrollee. However, this adjustment only operates if enrollment EXCEEDS projections. If enrollment falls short of projections, Tennessee has proposed that it will retain a portion of the federal funds that would have paid for the projected higher enrollment. This creates a deeply concerning incentive for Tennessee to hold down or reduce enrollment and let low-income people go uninsured, especially since the state is simultaneously requesting significant exemptions from federal oversight. Given Tennessee’s history of non-compliance with Medicaid requirements and the recent resulting loss of coverage for over 150,000 people in 2018 this will likely be a “fox guarding the henhouse” scenario, in which the state can use its well-established pattern of paperwork barriers to cut enrollment and generate savings.
• Applies to Kids, Adults, Elderly, and Disabled Populations: The state would set a cap on the federal funds it receives for four categories of beneficiaries: children, adults, elderly people, and disabled people. This means nearly all of the 1.4 millionTennCare enrollees would be impacted.
• Places the State at Risk for Increases in the Cost of Health Care: Right now, federal support automatically changes to match a state’s spending, and needs. Federal support increases if a state’s costs go up, like with an opioid epidemic, natural disaster, or in the event a state decides to cover new medical treatments for its residents. In contrast, Tennessee will face an awful choice in the event of health care cost trends that exceed their proposed inflation rate or a public health crisis under this proposal. This problem is likely to get worse once an inflation rate is negotiated with the Trump administration, given the Administration’s clearly stated goal of using block grants to drastically cut federal Medicaid spending.
• Streamlines the Process to Cut Benefits: Under Medicaid law, States establish and administer their own Medicaid programs and determine the type, amount, duration, and scope of services within broad federal guidelines. Federal law requires states to provide certain mandatory benefits and allows states the choice of covering other optional benefits. Once a state covers a benefit, however, federal law outlines broad requirements related to comparability and statewideness of the benefit. Under Tennessee’s proposal, the state wants to be able to cut or limit optional benefits and place additional limits on mandatory benefits without any federal approval. Waiving these federal protections and allowing the state to limit benefits without a transparent oversight process represents a major threat to beneficiaries in the state. If the state exceeds their allotted block grant budget, this provision gives the state an “out” to cut or limit benefits.
• Waives Federal Managed Care Standards: Tennessee, a predominately managed care state, wants to be exempt from the Medicaid managed Care regulations (42 CFR Part 438). Similarly to the above provision that would allow the state to cut benefits, this provision would give the state another pathway to save money on the backs of TennCare enrollees and their providers of care. The managed care rule provides requirements for mental health parity, an appeal and sanctions process, and network adequacy requirements, to name a few. Bypassing these important federal oversight provisions would be a grave threat to health care access.
• Allows the State to Use Federal Medicaid Funds for its General Expenditures if it Cuts Medicaid Sufficiently: If Tennessee can reduce Medicaid spending dramatically under a block grant using its new streamlined authority to make cuts, the state is proposing that it retain much of the federal dollars saved, essentially for state budget relief. On paper, Tennessee proposes to use those savings to re-invest into health. In practice, states like Vermont have used this type of authority to cover existing spending not typically covered by Medicaid: that is, to save money in other parts of the state budget. Notably, the state does not provide details about these proposed investments. The fact that Tennessee is simply asking for a blank check with no strings attached from the federal government is problematic on its own terms.  But in a framework in which that blank check is paid by cutting Medicaid eligibility, enrollment and services, the proposal creates an awful set of fiscal incentives for the state.
• Limits Prescription Drug Options: The state proposes that it has the flexibility to adopt a commercial-style closed formulary with at least one drug available per therapeutic class. Closed formularies in Medicaid is bad policy that limits access to necessary medications, risks advancing incomplete or inaccurate definitions of clinical effectiveness, and is unlikely to result in cost savings.

This block grant proposal:

• Does Not Expand Coverage: Tennessee is one of fourteen states that has not expanded Medicaid. The state could achieve a 90% federal match for 244,000 people rather than building a block grant off of their current 65.21% federal match rate. Instead of providing coverage to more in need in a cost-effective way, the state’s proposal incentivizes cuts to enrollment, benefits, or access for its current population.
• Does Not Comply with Federal Law: Section 1115 waivers gives states broad authority to waive provisions. However, this proposal makes at least two requests that fall outside of the authority of the 1115 waiver authority. First, the language defining the matching rate appears in a section of the Social Security Act—section 1903—that the Secretary does not have the authority to waive. Second, in no way does the block grant proposal “assist in promoting the objectives” of the Medicaid program. Given this, the Secretary cannot legally approve this request.
• Does Not Address Tennessee’s History of Poor Program Management: Tennessee has history of aggressive policies that led to thousands of eligible beneficiaries losing their Medicaid coverage, including a large proportion of children. These massive declines can be attributed to poor program management. Removing or limiting federal oversight into the Tennessee Medicaid program would be misguided.

Conclusion

The Tennessee proposal is a thinly veiled attempt to remove beneficiary protections in the name of cost savings. If Tennessee was really interested in saving state taxpayer dollars, they would accept enhanced 90% federal funding to expand Medicaid to 244,000 individuals in lieu of paying for an uncompensated care pool at only 65% federal match. Unfortunately, Tennessee is electing to transfer financial risk to state taxpayers while covering fewer people.