Medicaid Block Grant for Tennessee

Community Impact

April 17, 2019

SB1428 by Paul Bailey and HB1280 by Timothy Hill

This bill would require the Governor to request a Medicaid Block Grant waiver from the federal government without federal safeguards for eligibility, benefits or funding. The Governor seems supportive of this bill.

The status of the bill as of April 17, 2019: SB1428 is scheduled to be heard by the Senate Health and Welfare Committee on April 23, 2019. It has already passed the House.

To better understand this block grant proposal, some history of TennCare and the Medicaid program is needed. Three key aspects are eligibility, benefits, and financing.

Eligibility: TennCare was proposed in April of 1993 by Governor Ned McWherter and implemented on January 1, 1994. Its intention was to cover more Tennesseans through managed care. The same amount of state revenue would be required and would be available through the savings generated by use of a managed care system as opposed to fee-for-service paradigm. To do this, Tennessee requested an “1115 Waiver” from the federal government. This waiver is a different matter than the currently discussed  block grant waiver. Other states had used an 1115 waiver to cover part of a Medicaid population.  However, Tennessee was the first and the only state at that time to use a waiver to cover the entire Medicaid population, plus a group of uninsured individuals who were not traditionally eligible as they did not meet the categorical eligibility guidelines for Medicaid.

The categorical guidelines to qualify for traditional Medicaid required that certain populations who are under a certain income level and fixed assets be covered. There were both mandated and optional groups of individuals and families. Typically, the federal mandated groups are children with their parents, pregnant women, people who are 65 and older, and people who were disabled, all of whom were also low-income. Optional groups could include other low-income adults depending on state policy.  For example, a state could choose to cover pregnant women up to 185% of poverty, but states were mandated to cover pregnant women up to 100% of poverty.

However, neither a destitute single adult nor a low-income family above poverty is currently eligible for traditional TennCare. When TennCare expanded in 1994, its eligibility included all uninsured individuals and families who were not eligible for traditional Medicaid. Without the TennCare waiver, Tennessee would not have been able to use federal matching funds to cover this new, non-traditional Medicaid eligibility group. In 2005-06, Tennessee, under the Bredesen Administration, received permission from the Federal Government to dis-enroll this new eligibility group of uninsured individuals and families who did not meet the traditional Medicaid income limits.

Benefits: However, TennCare’s waiver never allowed for the reduction of any of the medical benefits mandated by federal law. For example, essential benefits such as Early Periodic Screening Diagnostic and Treatment (EPSDT) that included dental and vision benefits for children for children, as well as prenatal care and delivery for women, were not waived nor modified by the TennCare waiver. In addition, the right to appeal both eligibility and medical decisions by TennCare was not waived.

Financing: During this time, Tennessee hospitals were one of the first in the nation to self-impose an assessment (tax) in order to supplement the state’s general revenue, thereby enabling the state to draw down additional federal matching funds. Federal limits and restrictions applied, requiring the fee to be broad-based and imposed on all Tennessee hospitals with few exceptions, such as hospitals designated as Critical Access Hospitals.

Since 1994, additional provider groups in Tennessee have taken advantage of assessing themselves a tax and using these funds to draw down additional federal matching funds. Traditional matching federal funds with general state revenue had varied for Tennessee between 65% to 70% federal funds to 35% to 30% state funds. However, with the combination of self-imposed provider assessments and specific taxes on TennCare providers, such as MCOs, the real federal matching rate has increased over time to 87% federal and 13% state funds!

In the fiscal year 2018, Tennessee’s assessments and taxes for TennCare totaled $1,773,200,000, 49% of the required state match of $3,600,000,000. This means that Tennessee’s real match rate in FY 2018 was about 13% state, not 35% to 30%, to draw down 87% federal funds:

State FY 2018 Revenue	In Millions
Revenue Source
Hospital Assessment	$449.30
Nursing Facility Assessment	$124.10
EMS Assessment	$9.40
MCO Tax	$487.90
ICF/IDD Tax	$11.10
Drug Rebates	$657.00
Intergovernmental Transfers	$34.40
TOTAL	$1,773.20	49% of $3.6 billion required state match

In 2017, Congress, in its effort to Repeal and Replace the Affordable Care Act, proposed Block Grant Medicaid. There were two different proposals. One was a straight Block Grant that would have had a Funding Cap based on the current funding level and would grow with general inflation. The second was called a Per Capita Cap and its CAP would have been based on the funding base averaged over the last three years, the number of people being covered, and general inflation. Neither passed.

Inherent challenges with any block grant proposals are:

1. Economic Downturns: During economic downturns, Medicaid enrollment has grown.
2. Medical Inflation: Medical inflation is generally twice that of general inflation.
3. Who would be covered? Throughout the history of Medicaid, no state has been able to waive the mandated groups of people to be covered. Would mandated groups be waived?
4. Eligibility Requirements: No state, thus far, has been able to lower the eligibility requirements. Up until now, the federal government has set the minimum, allowing the states to go higher. Would minimum requirements for eligibility be waived?
5. Benefits: Currently, Medicaid has mandated benefits, such as EPSDT for children which include dental and vision. Would states to be allowed to change mandated benefits?