Tennessee on Wednesday asked the Trump administration to allow the state to transform its Medicaid system into a block grant program that would cap federal Medicaid funding in exchange for shared cost savings, making it the first state to seek approval for such a change.
The plan would allow the state to receive a lump sum payment for its Medicaid program—TennCare—from the federal government based on the CMS' estimate of how much Tennessee would be expected to spend on healthcare in a given year. Under Tennessee's proposal, the state and federal governments would split any unspent funds from the block grant if the state came under CMS' cost estimates. The agency currently expects the state to spend $7.9 billion on its Medicaid population.
Tennessee called Medicaid's financing an "outdated model of fundamentally misaligned incentives" in its proposal because states receive more federal funds if they spend more of their own money.
"We're asking CMS to hold Tennessee to the same standard that Tennessee holds its (managed care organizations)," said TennCare Deputy Commissioner Gabe Roberts at Kaiser Family Foundation event last month. "But we've committed to not skimp and save on the front end."
The state would be able to provide additional benefits to its Medicaid beneficiaries without seeking approval from the CMS. But unlike the original plan that debuted in September, the final proposal bars the state from reducing Medicaid benefits.
Tennessee initially wanted the CMS to give it the authority to reduce Medicaid benefits, but the state faced blowback from patient advocates who feared that benefit cuts could hurt TennCare's enrollees. Opponents questioned whether the CMS had the power to do it.
"Most of it is clearly a violation of federal law and not within the secretary's authority to waive," said Hannah Katch of the left-leaning Center on Budget and Policy Priorities when the plan was first announced.
Under the proposal, Tennessee's annual block grant would be adjusted for inflation and increases in the state's Medicaid population. The state claims those measures would ensure access to care for people that are eligible for Medicaid, especially during recessions. Tennessee couldn't have its block grant funding reduced due to decreases in its Medicaid population.
Conservatives have been advocating to block grant the Medicaid program for years because they think it will incentivize states to provide their Medicaid populations with healthcare at lower costs and increase state innovation. But many patient advocates and medical providers worry that block grants could decrease coverage and access to care and reduce quality.
Tennessee's unique approach wouldn't do as much to contain costs as a standard block grant, but it could alleviate some of people's concerns about impacts on coverage and access.
The Trump administration had developed guidance to encourage states to pursue block grants and other payment caps for their Medicaid programs, but withdrew it from the Office of Management and Budget's final review process last week without explanation.