Tennessee seeks to be first to turn Medicaid into block grant program

Tennessee released a plan Tuesday to radically overhaul its Medicaid program, seeking to take advantage of the Trump administration’s push to give states more flexibility in covering low-income residents’ health care needs.

Under Tennessee’s proposal, the state would become the first in the nation to convert Medicaid into a block grant program. This would give it more control over administering Medicaid in exchange for taking a fixed amount of federal funding.

Block grants have long been popular with Republicans, who see them as a way to control Medicaid spending. They were part of congressional Republicans’ failed attempts to repeal the Affordable Care Act in 2017 and have been included in President Donald Trump’s budgets. And the Trump administration, which would need to approve Tennessee’s plan, has encouraged states to make historic changes to their Medicaid programs, including adding work requirements.

“CMS supports efforts to improve accountability for cost and outcomes in Medicaid, and we look forward to working with Tennessee once they submit their proposal to help them achieve these goals as effectively as possible within our statutory authority,” said Johnathan Monroe, spokesman for the Centers for Medicare & Medicaid Services.

Opponents, however, say block grants could allow states to curtail Medicaid enrollments and benefits, leaving low-income residents vulnerable. Consumer groups have sued the Trump administration over its approval of work requirements, halting them in three states, and would likely do the same if officials approved Tennessee’s block grant plan.

Medicaid covers more than 70 million Americans, particularly low-income children, pregnant women, the elderly and people with disabilities, and is a major source of coverage for long-term care and births. Under the Affordable Care Act, it was expanded to cover low-income adults in 36 states, plus the District of Columbia.

Funding is now open-ended, with the federal government paying more than 60% of total Medicaid costs and states shouldering about 40% of the bill. Conservatives complain that the funding formula encourages states to spend more so they can secure more federal funding, while a block grant would prompt them to better control costs. Medicaid is typically one of the top two expenditures for states, and governors and lawmakers often complain that it eats up money that could be spent on education, infrastructure and other needs.

The proposal from Tennessee — which has not expanded Medicaid — doesn’t follow the typical block-grant idea, which would offer a lump sum payment to a state. It’s seeking to exclude expenses related to outpatient prescription drugs, home- and community-based long-term care, uncompensated care payments to hospitals and several other costs. These would continue to be funded under the current formula.

The block grant funding would rise if enrollment in Tennessee’s program, called TennCare, increases in the future — addressing a major concern that the safety net couldn’t expand in times of economic downturns. Plus, the annual increase in funding would be based on Congressional Budget Office projections for Medicaid growth, which is more generous than inflation.

Another provision: If the state spends less than the block grant amount, it gets to keep 50% of the federal share of those savings.

“Tennessee has drafted a proposal that gives them a lot of safety valves but still asks for a lot of flexibility to adjust benefits and to make changes without going through CMS,” said Allison Orris, counsel with Manatt Health, a professional services firm that works with states.

Roughly 1.4 million people are enrolled in TennCare, though not all would be affected by the block grant. The state’s initial calculation found that the block grant would be $7.9 billion the first year.

While the state’s proposal says there will be no reductions in who is eligible or what benefits are provided, Tennessee is asking for more control and less federal oversight.

Among the flexibilities it wants: limiting the number of prescription drugs covered, changing the optional benefits — such as prescription drugs and physical therapy — it provides without federal approval, modifying the enrollment process and allowing spending on social programs that affect participants’ health, such as nutrition assistance and housing support.

The Tennessee Legislature passed a law in May directing the governor to seek a block grant waiver within six months.

Other states are also looking to change how their Medicaid programs are funded. Alaska has commissioned a study of block grants, while Utah has asked federal officials to allow it to place a per capita cap on Medicaid spending.