On Tuesday, Tennessee became the first state to propose a drastic and dangerous change to how it finances its Medicaid program. Rather than being reimbursed by the federal government for the majority of its Medicaid spending, the state is instead asking the federal government to provide it with a fixed dollar amount, otherwise referred to as a “block grant.” The state claims that block grants will allow for better “efficiency,” “flexibility” and “innovation” in its Medicaid program, but in truth, block grants are simply Medicaid cuts in disguise. If approved, the state’s proposal will threaten the ability of more than one million Tennesseans to get the critical health care they need. At a time when Tennessee could expand coverage to more than 200,000 individuals, it is instead deciding to impose needless, harmful cuts.
To understand the dangerous nature of Tennessee’s new Medicaid funding proposal, it’s important to understand how state Medicaid programs are currently funded. As mentioned above, states are reimbursed by the federal government for at least half of the cost of their Medicaid programs, from anywhere between 50% to about 75% (this percentage is called the Federal Medical Assistance Percentage, or “FMAP”). In contrast to this current funding mechanism, which provides Tennessee with a reimbursement rate of about 65%, the state instead wants the federal government to provide it with an upfront, lump-sum amount, and for that amount to increase – if enrollment increases – by a per-person dollar figure, otherwise known as a “per capita cap.”
Funding proposals such as Tennessee’s are worrisome for one primary reason – they incentivize states to make cuts to Medicaid eligibility, total numbers enrolled and/or benefits. While Tennessee claims these types of cuts won’t occur, their proposal is certainly one that would reward less spending on Medicaid overall. For example, if the state spends less than the blocked amount in a given year, it can split those savings 50-50 with the federal government. Additionally, while the state is requesting that funding increase if enrollment increases, it also requests that there be no decrease in funding if enrollment decreases. It’s clear that Tennessee wants to be rewarded for spending as little as possible on its Medicaid program, without regard to whether or how reductions affect access to and quality of care for many thousands of its residents.
While it is likely that CMS and the state of Tennessee will need to negotiate on the details of the waiver, the health care advocacy community is concerned that Tennessee’s proposal could be ultimately approved by the Centers for Medicare & Medicaid Services (CMS). Seema Verma, the Administrator of CMS, is rumored to have been touting block grant financing with states behind closed doors, and has drafted block grant guidance for states that has been sitting with the White House’s Office of Management and Budget. If approved, it is possible that a domino effect will occur in which other states seeking to cut their Medicaid spending will also apply for a block grant. While block grants will likely be challenged in courts, since the Medicaid law prohibits financing mechanisms other than FMAP, any approvals that occur in the meantime will likely cause harm.
Rather than impose harmful and arbitrary cuts that will hinder access to care, Tennessee could instead realize state savings while increasing access by expanding Medicaid to more than 200,000 adults. Medicaid expansion has routinely been shown to improve state budgets by helping states realize savings in areas like uncompensated care, as well as increase state revenue by helping individuals work, and thereby stimulate state economies. In contrast, Medicaid block grants have already been deemed a failed policy at the federal level. In 2017, Congress failed to pass legislation repealing the Affordable Care Act because several repeal bills included block grant/per-capita-cap proposals, and many members disapproved of drastically dismantling Medicaid in those ways.
Though Tennessee claims that a block grant will allow for greater state flexibility to test out more effective and innovative approaches to delivering care, in reality a block grant only encourages the state to spend less, not spend more wisely. A Medicaid block grant is just a wolf in sheep’s clothing that will adversely affect health and health care.