Tennessee releases proposal to convert federal Medicaid dollars into block grant

Tennessee released its proposal to the federal government to become the first state to convert Medicaid funding into a block grant.

The state’s Department of Finance and Administration said in a notice Tuesday it intends to file an amendment to its Medicaid program to get the block grant. The expected request comes as the Trump administration has been talking with other states over similar proposals.

Currently, the federal government and state share costs for Medicaid, and there is no cap on funding. Under a block grant, the state would instead get a fixed amount from the federal government. The block grant would be based on historical Medicaid spending through state fiscal years 2016 through 2018, according to the notice.

“The proposed block grant will be indexed for inflation and for enrollment growth beyond the experience reflected in the base period,” the state said.

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The block grant would only cover core medical services for Medicaid recipients, but several services will be covered under the traditional federal-state match. These services include outpatient prescription drugs, uncompensated care to hospitals and administrative expenses.

Tennessee stressed that the proposal “does not rely on reductions to eligibility or benefits in order to achieve savings under the block grant.” It also won’t have a “material impact” on enrollment in Medicaid, according to a draft of the proposal.

However, Tennessee does ask that the state be exempt from any new federal mandates on eligibility or covered benefits that the federal government or Congress may adopt through the length of the block grant, which must be re-approved every three to five years.

“To the extent that Congress or (the Centers for Medicare & Medicaid Services) imposes additional requirements on the state during the course of the demonstration, the state’s block grant amount must be adjusted to account for any new expenses,” the draft said.

Patient advocacy groups and Democrats have charged that a block grant would inevitably lead to cuts to benefits or coverage once the state runs out of money.

Tennessee, which passed a law calling for block grants in May, said that the block grant instead will offer the state more flexibility to implement reforms to cut costs.

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State officials did ask the federal government to make it easier for the state to suspend or terminate eligibility for those guilty of Medicaid fraud. Historically, it has been up to the federal government to decide whether to terminate or suspend eligibility. Tennessee is asking for that power to be handed to the state.

“Within the flexibility afforded by the block grant, the state will develop its own policies—based on the nature of the underlying offense—regarding when it is appropriate to terminate or suspend a member’s eligibility,” the proposal said.

It remains unclear whether CMS will approve the state's request, although the agency has encouraged states to adopt similar reforms to Medicaid such as work requirements. As of Aug. 21, eight states have gotten federal approval to install work requirements, according to data from think tank Kaiser Family Foundation. Implementation, however, in several states has been bogged down due to court rulings.

Tennessee also may not be the last state to seek such an amendment. Department of Health and Human Services Secretary Alex Azar told Congress in March that the agency has been in talks with several states to adopt block grants. Republicans have long called for block grants as a necessary reform to rein in Medicaid costs.

A block grant approach was proposed in a 2017 Obamacare repeal bill sponsored by Republican Sens. Bill Cassidy of Louisiana and Lindsey Graham of South Carolina. The bill was eventually scrapped due to insufficient GOP support. Other Obamacare repeal bills have touted a per capita cap that caps Medicaid funding based on the population in a state.