Tennessee seeks to become first state to turn Medicaid into a block grant

Tennessee on Tuesday unveiled a proposal to convert its Medicaid program into a limited, block grant–type model, a controversial plan that, if approved, could be the first in the nation.

The proposal needs to be submitted to the Centers for Medicare and Medicaid Services for approval. Imposing block grants in Medicaid has long been a major conservative goal and has been encouraged by the Trump administration. 

Administration officials have drafted a guidance that would make it easier for states to apply for a capped payment or block grants. That document has been under review by the White House Office of Management and Budget for months, but it could be released at any time. 

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The administration has also been quietly trying to sell states on the merits of imposing block grants without congressional approval. Health and Human Services Secretary Alex Azar told lawmakers last spring that he had been having conversations with states interested in the idea. 

No states have been granted permission to date, but if Tennessee’s plan is approved, it would likely embolden other Republican-led states. The proposal will also mobilize opposition from patient advocacy groups, who have already been protesting since the state passed a bill 

Medicaid block grants were also part of congressional Republicans' failed ObamaCare replacement plan in 2017, and internal GOP disagreements over Medicaid cuts were a significant reason the bill failed. 

The Trump administration has made state flexibility a priority in its quest to remake Medicaid from an open-ended entitlement program to one with spending limits. 

Recently, Alaska’s governor said the administration had been urging him to ask for a block grant, but the state hasn’t submitted an application. 

Utah was denied permission to implement a “partial” Medicaid expansion, but has also asked permission to impose a per-person spending cap and is awaiting a reply.

Republicans say policies like block grants allow for more state flexibility and are more fiscally sustainable.

“Tennessee’s proposal is predicated on the simple idea that in general, the state is in a better position than the federal government to direct TennCare spending in order to most effectively promote the health of the TennCare population,” the state said in its application. 

Tennessee’s proposal is a novel one that departs from some of the more traditional block grant ideas, even as it imposes financial caps on federal spending. 

Under Tennessee’s proposal, the state would receive a nearly $7.9 billion block grant from the federal government, which is based on projected Medicaid costs. The amount would be adjusted for inflation, but unlike a traditional block grant, it could increase in the future based on enrollment. 

If enrollment drops, the block grant amount would not decrease. The state said no current TennCare members would experience a loss or rollback of benefits.

Also unlike a traditional block grant, if the state spent less in a given year than it would have under the traditional Medicaid system, Tennessee would split those savings with the federal government.

In addition, the state is not including the entire Medicaid program under its block grant. Notably, outpatient prescription drug coverage and payments to hospitals that treat a disproportionate share of low-income people would be excluded.