CMS Approves Nation’s First Block Grant To Cut Medicaid Spending

January 11, 2021 - CMS has approved a waiver for TennCare, Tennessee’s Medicaid program, which seeks to control Medicaid spending by implementing a block grant.

“The negotiated agreement includes the major components and principles outlined in TennCare’s original proposal to CMS, building upon Tennessee’s history of effective management of its Medicaid program and providing opportunities for additional federal funding for the purpose of improving the health of TennCare members and communities throughout the state,” a press release from TennCare explained.

Block grant funding allows states to request capped federal funding for non-mandatory adult populations. Under the Healthy Adult option, capped funding can take the form of an aggregate spending cap or per capita spending cap.

“We approached our negotiations with CMS and the ultimate agreement with one overriding question and directive from Governor Lee – Will this plan benefit Tennessee, our TennCare program and the people we serve?” said Stephen Smith, the director of TennCare.

“We are convinced the answer is yes. This gives Tennessee the real opportunity to enhance the services we provide to Tennesseans.”

Tennessee was the first state to request a block grant. However, CMS has stated that the approved proposal is not a block grant, but rather a cap on the state's Medicaid spending based on the population growth and costs of the program.

Under the original proposal, Tennessee would receive billions in funding from the federal government, with the amount based on the average enrollment of the past three years multiplied by the federal government’s estimate of Medicaid costs per member.

There would be no changes in eligibility requirements or benefits. Additionally, the grant will be adjusted for changing inflation and enrollment.

Any savings that TennCare accrued due to the block grant format, the state would split almost evenly with the federal government. The state’s share of the savings will go back into the Medicaid program, the proposal promised.

“Today’s agreement represents a continuation of Tennessee’s commitment to innovate, lead and improve,” said Governor Bill Lee.

“We have sought to fundamentally change an outdated and ineffective Medicaid financing system that incentivizes states to spend more taxpayer dollars rather than rewarding states for value, quality and efficiency. Our approved plan will create an unprecedented opportunity for Tennessee to be rewarded for its successful administration of TennCare and further improve the health of TennCare members and Tennessee communities with that reward.”

The proposal was a source of much partisan tension amongst Tennessee lawmakers.

Those in support of block grants point out that in the current format of federal funding, the more a state spends, the more it receives from the federal government.

The block grant entered into the Trump Administration’s agenda in an effort to cut back Medicaid spending. It was included in the 2020 fiscal year federal budget which aimed to cut Medicaid spending by $1.5 trillion. CMS then introduced the block grant in January 2020 as the Healthy Adult Option.

At the time, the budget and its block grant approach drew opposition from the American Hospital Association, the Federation of American Hospitals, and the Southern Poverty Law Center.

When Tennessee was considering its block grant proposal, it also faced fierce opposition. Lawmakers who stood against passing the proposal may have remembered a previous Medicaid funding cut that led to problematic patient experiences among low-income beneficiaries in certain populations.

Furthermore, block grants do not necessarily rectify this issue of incentivizing positive Medicaid spending trends, according to a brief from the Robert Wood Johnson Foundation. The challenges of determining the aggregate growth rate, the minimalist Medicaid spending per capita, and the growth rate for Medicaid spending per capita complicate this solution.

Now that it has received CMS approval, Tennessee’s block grant proposal still has to receive authorization from the Tennessee General Assembly before it can go into effect.