Trump administration strikes parting blow at Medicaid with Tennessee block grant

Just days before leaving office, the Trump administration took a step toward fulfilling a long-held Republican dream of curbing Medicaid costs and giving states more flexibility to run the program.

The Centers for Medicare and Medicaid Services Friday granted Tennessee’s request to turn its federal Medicaid funding arrangement into a so-called modified block grant. It is the first state to receive such permission and is similar to a guidance the agency issued in early 2020.

The Biden administration, however, is expected to oppose the approval, which lasts 10 years. While incoming officials can reverse the decision, the state can request a hearing to challenge that determination. The overturning of approvals has rarely, if ever, happened.

Funding for Medicaid, which covers more than one in five Americans, 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 formula encourages states to spend more so they can secure more federal funding, while a block grant would prompt them to better control costs. Consumer advocates, on the other hand, say that block grants would lead states to shrink their Medicaid programs to stay under the spending caps, harming vulnerable residents.

The Trump administration has encouraged states to make historic changes to their Medicaid programs, including adding work requirements — which is now before the Supreme Court.

What Tennessee can now do

Tennessee’s waiver shifts federal funding for its TennCare program to a lump sum, which will increase annually based on projected Medicaid spending growth rates in the president’s budget. If enrollment rises or falls more than 1%, the block grant is adjusted accordingly. TennCare currently covers about 1.5 million low-income residents.

If the program comes in under budget and meets certain quality metrics, the state can share in the savings. Among the target priorities for the extra funds, officials said, are addressing maternal health, serving individuals with intellectual and developmental disabilities currently on a waiting list to receive services and addressing other state-specific public health crises.

“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,” said Gov. Bill Lee, a Republican.

The state may only supplement, not reduce, beneficiaries’ current coverage and benefits, said CMS administrator Seema Verma.

The waiver also gives the state more flexibility in administering its program, including limiting the number of prescription drugs covered and changing the optional benefits — such as prescription drugs and physical therapy — it provides without federal approval.

Tennessee is one of a dozen states that has not expanded Medicaid to low-income adults under the Affordable Care Act.

Block grant opponents, however, say that the arrangement could lead to Tennessee reducing enrollment or benefits to enhance its potential savings and stay under the cap. They point out the waiver approval does not prohibit the state from taking such steps.

“It just creates a significant incentive for Tennessee to make cuts to its program,” said Hannah Katch, senior policy analyst at the left-leaning Center on Budget and Policy Priorities.