Tennessee Republicans will test the Trump administration's willingness to radically restructure Medicaid by turning it into a block grant program.
The GOP-led Legislature passed a bill last week ordering the governor to submit a Section 1115 waiver request within six months. The waiver would seek federal approval to transform TennCare, the $12 billion Medicaid program covering 1.3 million Tennesseans, from an open-ended entitlement program to one where the federal government makes fixed payments.
Tennessee Republican Gov. Bill Lee indicated he will sign the bill.
Tennessee is following Utah, which in February passed a bill mandating the governor to submit a waiver to the CMS establishing a per capita cap on federal Medicaid payments to the state.
Both bills are in line with the Trump administration's stated policy goal of encouraging states to experiment with a capped federal payment system to constrain Medicaid spending growth. The CMS reportedly is drafting guidance on how to design a capped spending model.
Beyond that, President Donald Trump's proposed budget would restructure Medicaid as a block grant or per-capita cap program, while cutting federal Medicaid funding by $1.48 trillion over 10 years.
Other Republican-led states, such as Alaska and Georgia, also have expressed interest in such waivers.
Supporters of the block grant approach argue it will enable states to design more efficient Medicaid programs that provide better benefits, cover more people and save money.
"If we can remove some of the red tape and regulation Medicaid has, we'd be able to free up more of our federal dollars to provide more services for individuals," said Sen. Paul Bailey, a Republican sponsor of the bill.
But opponents, including providers and patient advocacy groups, warn that capped models like block grants or per capita caps would lead to reduced Medicaid funding over time and require states to cut enrollment, benefits and payment rates.
"I don't think people understand what we're getting into," said Sen. Richard Briggs, a Republican and cardiothoracic surgeon. "Why put the good fiscal management of our state in jeopardy with an experimental block grant program no one in the country has tried before?"
He and others say it could cause more rural hospitals to close in a state where 12 have been shuttered since 2012.
The Tennessee Hospital Association said in a written statement that a block grant program could "threaten TennCare benefits, enrollment and reimbursement to hospitals and providers."
The CMS declined to comment. If the agency approved Tennessee's waiver, that likely would trigger litigation over whether it has authority under the Medicaid statute to change the fundamental funding formula without congressional action.
"There are two foundational things in Medicaid—an entitlement for all individuals eligible for coverage, and a guarantee to states of federal matching dollars," said Robin Rudowitz, a Medicaid analyst at the Kaiser Family Foundation. "Block grants run counter to both of those core principles."
The Tennessee bill was hastily cobbled together on the last day of the legislative session, after Democrats were excluded from the negotiating committee. It offers little detail on how the block grant demonstration program would be structured. It calls for the state to request "maximum flexibility" on federal rules, and says federal funding should be indexed to population growth, inflation and other factors.
It includes vaguely worded provisions requiring that the amount of the block grant account for fluctuations in drug and medical supply costs and that it not reduce federal funding.
But experts say the block grant model could leave the state financially strapped if the number of people needing Medicaid swelled during an economic recession. The state also could be squeezed if Medicaid costs rose due to an unforeseen public health crisis or due to expensive new prescription drugs or technology, such as the hepatitis C therapies.
"A straight block grant could be very dangerous," said Briggs, who for the past few years has unsuccessfully pushed for Medicaid expansion under the Affordable Care Act. "If we go into a recession—and we're due for one—there will be more people going into Medicaid, and the state would have to make up revenues to cover them."
Bailey said the bill includes "guardrails" to ensure that the federal block grant payments are adequate to maintain the current level of coverage and even expand it to more people.
But Gordon Bonnyman, co-founder of the Tennessee Justice Center, said the Trump administration has made it clear it wants to sharply reduce federal Medicaid spending, and a block grant proposal that strongly protected funding for the state would not be attractive to the CMS.
Nevertheless, HHS Secretary Alex Azar told a U.S. Senate panel in March that his agency is talking with states about establishing Medicaid block grants without congressional approval.