Medicaid block grants would give states more power to oversee managed care

States that get a block grant for certain Medicaid populations can get more flexibility and less regulatory oversight of their managed care contracts. (Getty/designer491)

Managed care plans in states that get a Medicaid block grant need to heavily scrutinize proposed rates thanks to new state flexibility, experts say.

States that get a block grant for Medicaid funding for a limited population can also get more power to oversee their managed care plans. But experts say legal challenges to the controversial waiver program announced earlier this week are highly likely.

Thursday, the Centers for Medicare & Medicaid Services (CMS) unveiled the Healthy Adult Opportunity initiative. The agency gave states guidance to apply for a block grant for Medicaid funding for healthy adults earning a certain amount under Medicaid. The grant would not affect the elderly, disabled, children and pregnant women.

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States that are seeking the waiver can choose to get a capped amount through fee for service or via managed care. If a waiver gets approved, states would get new flexibility when it comes to handling managed care contracts.

For example, a state would not have to get approval from CMS for a capitation rate. Normally, CMS would review such rates to ensure they are sound.

“Similarly, states would be expected to certify that their managed care plans have the capacity to meet the state’s standards for access to care and availability of services,” according to a letter sent by CMS to state Medicaid directors.

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States can also seek to stray from federal statutory requirements. A state must still get approval from CMS for its initial managed care contracts.

However, CMS doesn’t anticipate it will require approval of any contract amendments.

“CMS will monitor managed care contract amendments to ensure compliance with the terms of the demonstration and legal requirements,” the CMS letter said. “For states that would prefer the certainty that comes with approval, CMS also would allow states to seek formal approval for contract changes.”

The lack of CMS approval of rates means managed care organizations need to scrutinize the states’ rates even more, said Margaret Scott, associate principal for Medicaid with consulting firm Avalere Health.

“While [managed care organizations] already scrutinize the rates that states are putting out, they will want to be even more careful because won’t be a check prior to the rates being effective,” said Scott.

So far, Tennessee has become the only state to apply for a block grant. However, Oklahoma’s Republican Gov. Kevin Stitt said during an event in Washington on Thursday that his state will also seek a block grant under the new waiver system. But legal experts question whether the programs will ever see the light of day as a court challenge is very likely.

“It is a classic constitutional case of who gets to allocate funding and who gets to stop allocating funding and that is Congress,” said Susan Feigin Harris, a partner with law firm Morgan Lewis.

Harris added that the waiver program was outlined in a letter to Medicaid directors and not via a rule.

Congress itself has also debated block grants for years and has not approved them, Harris said. A 2017 bill trumpeted by Sens. Bill Cassidy of Louisiana and Lindsey Graham of South Carolina would take funding from the Affordable Care Act (ACA) and convert it into a block grant. It failed to gain enough GOP votes in the Senate to advance.

Other attempts by the Trump administration to alter Medicaid have run afoul of the legal system. A series of court challenges has derailed efforts by several states to install work requirements for beneficiaries under the ACA’s Medicaid expansion.

CMS Administrator Seema Verma even highlighted the legal challenges in her speech on Thursday outlining the block grant initiative.

“While those that want Medicaid to be business as usual are willing to weaponize the legal system to thwart state innovation at every turn, our administration is committed to protecting and improving the lives of Medicaid recipients,” she said.