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Tennessee unveils $7.9B block grant proposal for Medicaid

To date, no state has been given permission to rely solely on block grants to pay for Medicaid.

NASHVILLE, Tenn. — Tennessee would become the first state in the nation to receive its Medicaid funding in a lump sum under a proposal seeking to drastically overhaul the program that provides health care services to low-income and disabled residents.

Nearly four months after Gov. Bill Lee signed off on the idea, state officials released details of the estimated $7.9 billion Medicaid block grant plan Tuesday with the intent of submitting the final product to the federal government in November.

"We happen to be one of the most cost-effective states in America, which is why this can be a win for Tennessee," Lee said. "If we get this grant, (the federal government) would be willing to do this because it would be an example of rewarding an efficient system."

The plan's likelihood of ever being implemented, however, remains largely unknown. To date, no state has been given permission to rely solely on block grants to cover Medicaid expenses. The idea has been floated by Republicans for decades but never implemented, due to possible legal challenges and concerns that doing so would result in large spending cuts to the states' most vulnerable populations.

Yet Lee remains hopeful, noting that support is growing under President Donald Trump's administration and asserting that no services to the state's indigent population will be cut. Tennessee's GOP U.S. Sens. Lamar Alexander and Marsha Blackburn have also expressed interest in the plan, an endorsement that some say could help push the idea further along.

In 2017, Trump's budget proposal called for block grant funding and cuts to Medicaid. The legislation failed to pass Congress, but some states renewed efforts to pursue the option by petitioning the federal government. Along with Tennessee, similar block grant discussions are being held in Alaska and Utah.

Lee later said Tennessee would receive more under the block grant program proposal. When asked why the federal government would favor spending more money in Tennessee, Lee said he believed Tennessee history of being fiscally responsible with Medicaid would help secure the deal.

"(The federal government) wants to find states that will be innovative and demonstrate efficiencies delivering the same services. If they reward those, then ultimately the cost of Medicaid for America goes down," Lee said.

Currently, the federal government pays percentage of each state's Medicaid costs, no matter how much they rise in any given year. For Tennessee, that means receiving approximately $7.5 billion in federal money for its $12.1 billion Medicaid program, or 65%.

Republicans argue this system gives states little incentive to keep expenses under control, because no state pays more than half the total cost. They contend that states need more flexibility to shape their Medicaid programs while also being given the opportunity to rein in spending.

Opponents counter that block grants create too big of a financial risk for states in the event of an economic downturn. National patient-advocacy groups, from the American Cancer Society to Susan G. Komen, have written to Tennessee and the Centers for Medicare and Medicaid Services opposing block grants. They warn that overhauling TennCare will leave approximately 1.3 million Tennesseans enrolled in Medicaid in jeopardy of losing their medical care.

Since 1994, Tennessee has operated its Medicaid program under a waiver known as TennCare. It allows Tennessee to deviate from the standard federal rules by enrolling recipients in managed care programs rather than fee-for-service arrangements.

Under Lee's proposal, the first year of the block grant program would cost the federal government an estimated $7.9 billion based on a calculation proposed by the state.

The block grant would only cover core medical services for the disabled and blind, children, adults and elderly — or about 1.2 million Tennesseans. This means administrative costs, prescription drugs, uncompensated hospital care payments and individuals dually eligible for Medicaid and Medicare would not be part of the block grant plan, which is a much lower population of Tenncare.

The federal government would increase Tennessee's block grant funding if enrollment grows beyond what was originally calculated.

TennCare Director Gabe Roberts called the plan a "hybrid" approach to block grants because the state has designed its proposal to allow Tennessee to keep 50% of any unspent block grant funds.

Roberts says Medicaid doesn't recognize state efforts to save the federal government money. For example, last year, Roberts says Tennessee came in $2 billion lower than projected. Under the block grant, Tennessee would have been able to pocket $1 billion, depending on what is ultimately negotiated with the federal government.

"The shared savings component of the block grant is a key feature and necessary component of the state's proposal," the proposal reads.

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