4 major questions on Tennessee's bid to become first state to get a Medicaid block grant

There are several lingering questions around Tennessee's plan to submit a waiver to convert its federal Medicaid funding into a block grant. (Getty/juststock)

Tennessee is expected to become the first state to apply for a federal waiver to convert its federal Medicaid funding into a block grant.

The decision announced Tuesday opened up several questions over the waiver’s impact on coverage, managed care in the state and whether it was legal. If approved by the Trump administration, Tennessee would get a fixed funding amount for Medicaid instead of the current open-ended system.

Here are some of the key questions over the state proposal:

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How will block grants affect coverage and enrollment?

Tennessee argues the block grant won’t lead to reductions in benefits or eligibility. The proposal said that the block grant will be adjusted for any year where Medicaid enrollment goes beyond the base period of 2016 to 2018. But several experts say that promise contradicts some of the new flexibility the state is asking for.

For instance, the state wants to modify enrollment processes but doesn’t say which ones. Tennessee also wants to bypass getting Centers for Medicare & Medicaid Services (CMS) approval for optional state benefits.

“Changes in the amount, duration and scope of state plan benefits that do not affect the overall sufficiency of the benefit shall not require CMS approval,” the proposal said.

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The block grant proposal “may not reduce eligibility, but it may make it harder for people to enroll,” said Allison Orris, counsel with the professional services firm Manatt Health. The state may also have an incentive to lower benefits, because they can now get a share of any savings made under the block grant.

“There is almost an incentive to cut because every benefit you cut or make it harder for families to enroll you can claim those savings at a much higher rate,” said Edwin Park, a research fellow at the Georgetown Center for Health and Families.

The state waiver has also been vague on how the funding from any savings would be used, Park added.

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The advocacy group Families USA added in an analysis that Tennessee doesn’t have a good track record with managing benefits.

“Tennessee has [a] history of aggressive policies that lead to thousands of eligible beneficiaries losing their Medicaid coverage, including a large proportion of children,” the group said in an analysis released earlier this week.

What does this proposal mean for managed care plan sponsors?

This one is easy: fewer regulations.

All of Medicaid’s enrollees are in managed care, and the state has four insurers offering managed care plans: UnitedHealthcare, TennCare Select, BlueCare and AmeriGroup. Tennessee is asking for the state to be exempt from Medicaid’s managed care regulations.

“They are asking for a lot of traditional CMS oversight to go away,” said Orris. “There are things like review of contracts, review of rates and actuarial soundness. All of that goes to what would network adequacy look like and what would payment rates look like.”

Is Tennessee's waiver request legal?

Tennessee plans to submit the waiver under Section 1115 of the Social Security Act, which lets states make changes to Medicaid or other federal programs. This is the same waiver process used by several states to get approval for Medicaid work requirements.

However, the waiver program only applies to the federal law governing major eligibility benefits and state plan requirements. It does not touch Medicaid financing including the open-ended financing structure, Park said.

“The provision that requires Medicaid dollars to be matched with non-federal share is not something that CMS has the authority to waive under Section 1115,” added Orris.

A waiver also must meet the objectives of the Medicaid program, which is to offer healthcare to eligible individuals on an affordable basis. The administration has had trouble with the work requirement waivers, as a federal judge has ruled several state waivers don’t meet the objectives of the law.

Will other states submit their own block grant proposals?

It appears likely, but they may wait and see what happens with Tennessee. For one thing, CMS is preparing to issue guidance for states to help prepare waivers for block grants and possibly for per capita caps, Orris said.

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The states may wait to find out what the guidance looks like and how that document “relates to what Tennessee has proposed and then move forward,” she added.

Department of Health and Human Services Secretary Alex Azar has also told Congress that the agency is working with several states on block grants. Tennessee is in a different situation in that the legislature passed a law that set a deadline to apply for a block grant waiver.