Tennessee becomes first state to ask permission for Medicaid block grants


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Tennessee on Wednesday formally asked the Trump administration for permission 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 will test the Trump administration’s ability to allow states the flexibility to make drastic changes to Medicaid.

Imposing block grants in Medicaid has long been a major conservative goal and has been encouraged by the Trump administration, but it is not clear if the administration alone has the legal authority to allow such drastic changes.

Administration officials had drafted a guidance that would make it easier for states to apply for a capped payment or block grants, but the document was quietly removed from the White House Office of Management and Budget last week.

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

“This proposal represents a significant opportunity for the federal government to test a potential innovative, national solution at how to incentivize states’ performance in maximizing the value of taxpayer dollars,” the state said in its application.

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

Critics fear a block grant would ultimately lead to states kicking people off their rolls or pulling back services. But 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.



CMS pitches ramped up oversight of Medicaid payments, promises block grant guidance


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UPDATE: Nov. 13, 2019: This brief has been updated to include comments from provider groups.

Dive Brief:

  • CMS proposed a new rule Tuesday that would establish stricter requirements for states to report information on supplemental Medicaid payments to providers in a bid to clamp down on spending and promote transparency.
  • The agency will also soon release guidance on how states can test alternative financing approaches in the safety net program like block grant and per-capita cap proposals for “certain optional adult populations,” CMS Administrator Seema Verma said Tuesday at the National Association of Medicaid Director’s annual conference in Washington, D.C.
  • Later this year, CMS will also issue guidance on how states can promote value-based payments and social determinants of health factors in Medicaid, Verma said. The Center for Medicare and Medicaid Innovation is currently developing several new payment models to push providers to take on more risk for their patient populations in those programs.

Dive Insight:

The moves are in line with sweeping changes from the Trump administration moving more power to the states and asking more from recipients. The CMS administrator teased late last month the agency would soon release new guidance for states to inject flexibility into their Medicaid programs.

“We shouldn’t ration care but instead make how we pay for care more rational,” Verma said Tuesday. “Medicaid must move toward value-based care.”

Speaking to the Medicaid directors Tuesday, Verma said the changes are aimed preserving Medicaid for future generations.

“Going forward there will be no new [State Innovation Model] grants, no more open-ended one-off district waivers,” she said. “We must move forward with a more unified, cohesive approach across payers, across CMS, across states.”

The proposed rule, called Medicaid Fiscal Accountability (MFAR), will add more scrutiny to supplemental payments, which are Medicaid payments to providers in addition to medical services rendered to Medicaid beneficiaries, such as payments supporting quality initiatives or bolstering rural or safety net providers.

Some states rely heavily on these additional payments to offset low Medicaid reimbursement or support struggling hospitals. Provider lobbies did not take kindly to the new rule.

“We share the government’s desire to protect patients and taxpayers with transparency in federal programs, but today’s proposal oversteps this goal with deeply damaging policies that would harm the healthcare safety net and erode state flexibility,” Beth Fledpush, SVP of policy and advocacy for America’s Essential Hospitals, said in a statement.

AEH, which includes more than 300 member hospital and health systems, many of which are safety net providers, asked CMS to withdraw the proposal. The American Hospital Association told Healthcare Dive it was still reviewing the rule and declined comment.

However, government oversight agencies like the Government Accountability Office and the Office of Inspector General have recommended changes to these payments, which have increased from 9.4% of Medicaid payments in 2010 to 17.5% in 2017, according to CMS.

MFAR would also propose new definitions for “base” and “supplemental” payments in order to better enforce statutory requirements around and eliminate vulnerabilities in program spending.

Verma has long teased CMS support of block grants, an idea popular with conservatives, but Tuesday’s speech solidifies the agency’s support of such proposals. A handful of red states have been mulling over capped spending to gain more clarity around budgets.

In September, Tennessee unveiled its plan to move to a block grant system that would set a floor for federal contributions adjusted on a per capita basis if enrollment grows. Any savings would be shared between the state and the government.

Tennessee must submit a formal application to CMS to later than Nov. 20. If approved, it would become the first state to use a block grant funding mechanism in Medicaid. Additionally, Utah submitted a waiver application seeking per-capita Medicaid caps in June; Oklahoma Gov. Kevin Stitt, a Republican, is reportedly considering such a program; and Alaska and Texas have both commissioned block grant studies.




A group of Republicans has unveiled its healthcare plan. Here is what’s new and what isn’t


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The Republican Study Committee (RSC), a group of 145 House GOP lawmakers, rolled out a new healthcare plan to counter Democrats’ call for “Medicare for All.”

However, the plan itself closely resembles the Affordable Care Act (ACA) repeal bill called the American Health Care Act (AHCA) that the House passed in 2017 and contributed greatly to the loss of the GOP House majority in 2018.

For the plan to become law, Republicans would have to retake the House in 2020, and President Donald Trump would need to be reelected. However, if those victories happen, the plan could be a blueprint for how a GOP-controlled Congress would move forward on healthcare, as the committee counts among its members both GOP leadership and rank and file.

Here are three takeaways from the plan:

Shifting to high-risk pools

The plan would retain the ACA’s requirement that individual market plans cover pre-existing conditions. However, it takes out provisions that ensure patients with pre-existing conditions get affordable coverage such as requirements that prevent plans from charging sicker people higher premiums than healthy customers.

The plan does introduce high-risk pools that would be used by people with high healthcare costs, a commonly deployed tactic by states for the individual market before the ACA. The high-risk pools would be funded by repackaging the funding used for the ACA’s subsidies and the Medicaid expansion.

However, the plan doesn’t identify the full amount that should be devoted to high-risk pools, which segregate high-cost customers on the individual market.

The plan cites a 2017 report from consulting firm Milliman that estimated a federally supported high-risk pool could require $3.3 billion to $16.7 billion a year. The AHCA also called for high-risk pools but only gave $2.5 billion a year to help states fund them.

While the “$17 billion annual price tag may not seem ideal, it sets up a sustainable path for the individual market,” the RSC report said.

The desire for more funding for high-risk pools is likely a nod to Democratic attacks during the 2018 midterms that the AHCA threatened pre-existing condition protections. The nonpartisan Congressional Budget Office said the AHCA, which let states waive pre-existing condition protections, would lead to people in those states not getting affordable coverage for their pre-existing conditions.

While the AHCA had funding for high-risk pools, experts across the healthcare spectrum said that it wasn’t enough. It would remain to be seen how much more funding would be needed.

Doubling down again on health savings accounts

Bolstering health savings accounts has been a very popular reform idea among Republicans, and that enthusiasm is clear in the RSC plan.

The plan proposes to increase how much an employee can contribute to a health savings account. Currently, an individual can contribute $3,500 and a family can contribute $7,000.

A 2018 bill that passed out of the House but didn’t make it through Congress increased the contribution cap to $6,650 for an individual and $13,300 for a family.

Now, the RSC plan wants to increase the figures again, this time to $9,000 per individual and $18,000 for families, in line with a proposal from libertarian think tank Cato Institute.

“The RSC plan would also expand health savings accounts so that they could be used for a number of health services and products that currently must be paid for with after-tax dollars,” the plan said.

Replace Medicaid expansion with a block grant

This is another common reform in ACA repeal plans. The bill would phase out the enhanced federal matching rate for the Medicaid expansion to pre-expansion levels.

In addition, the bill would replace the existing open-ended federal match with a fixed amount in a block grant.

But the plan has a new twist in a new “flex-grant” that would give more funding to states that adopt a work requirement. However, half of the funding for any flex-grant must go toward supporting the purchase of private plans for low-income individuals.

So far, 12 states have gotten approval from the Trump administration to install work requirements for their Medicaid expansion population. But of those 12 states, three have had their work requirement programs struck down by legal challenges.

Some states are also considering installing their own block grants. Tennessee has released a draft proposal for a block grant but has yet to get federal approval.




Republicans ready to revive ACA repeal talks


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Sen. Lindsey Graham, R-S.C., promised to revive ACA repeal in Congress if Republicans can win back a majority in the House and reelect President Donald Trump in 2020, according to an interview on South Carolina radio show “The Morning Answer with Joey Hudson,” featured by The Hill

“This is what 2020 is about: If we can get the House back, and keep our majority in the Senate, and President Trump wins reelection, I can promise you, not only are we going to repeal Obamacare, we are going to do it in a smart way where South Carolina would be the biggest winner,” Mr. Graham said.

Mr. Graham, who failed to pass an ACA repeal plan in 2017, called “Medicare for All” and other Democratic presidential candidates’ healthcare plans “crazy.”  

“Medicare for All is $30 trillion, and it’s going to take private sector healthcare away from 180 million Americans,” he said. Instead, he proposed giving states the power to determine healthcare policy through block grants and other smaller reforms. This would allow states to test conservative healthcare policies against liberal ones, he said. 

“This election has got a common thing: Federalism versus socialism,” Mr. Graham said. “What I want to do is make sure the states get the chance to administer this money using conservative principles if you are in South Carolina, and if you want Medicare for All in California, knock yourself out.”

No partial Medicaid expansions


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The Trump administration made a very big decision over the weekend: It won’t approve full federal funding for a partial Medicaid expansion.

Why it matters: The partial expansion had looked like a key weapon in red states’ continued resistance to the ACA. Without it, Medicaid enrollment likely will keep growing.

Between the lines: Although the reasoning is different, the Trump administration is now adopting the same policy as the Obama administration — a decision many experts believe the law compels.

Details: Utah voters approved the full ACA expansion last year, but the state legislature overruled them to pass a more limited version.

  • Utah believed that the federal Centers for Medicare & Medicaid Services would approve full federal funding even for the partial expansion, which prompted other red states to explore the same idea.

The intrigue: While the Obama administration rejected these requests on the grounds that federal law dictates the terms of a Medicaid expansion, the Trump administration went a different route, per the Washington Post.

  • “White House advisers argued that it did not make sense to approve generous federal funding under the ACA while the administration is arguing that the entire law should be overturned,” the Post reports.

The bottom line: Utah has a backup plan in place — the full Medicaid expansion that Utah residents voted for in the first place.

  • Partial expansion was mainly attractive to red states facing pressure to expand but had leaders who didn’t want to. With that option off the table, don’t be surprised if more states end up just going along with the expansion.





Red states’ Medicaid gamble: Paying more to cover fewer people


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Red states are getting creative as they look for new ways to limit the growth of Medicaid. But in the process those states are taking legal, political and practical risks that could ultimately leave them paying far more, to cover far fewer people.

Why it matters: Medicaid and the Children’s Health Insurance Program cover more than 72 million Americans, thanks in part to the Affordable Care Act’s Medicaid expansion. Rolling back the program is a high priority for the Trump administration, and it needs states’ help to get there.

The big picture: The Centers for Medicare & Medicaid Services, under the leadership of Administrator Seema Verma, has made clear that it wants to say “yes” to new limits on Medicaid eligibility, and has invited states to ask for those limits.

  • But CMS hasn’t actually said “yes” yet to some of the most significant limits states have asked for.
  • In the meantime, states are left either with vague ambitions they’re not sure how to implement, or with risky plans that put their own budgets on the line.

What we’re watching: State-level Republicans are waiting for CMS to resolve two related issues: how much federal funding their versions of Medicaid can receive, and the extent to which they’re able to cap enrollment in the program.

  • “These issues are going to continue to be intertwined,” said Joan Alker, the executive director of Georgetown University’s Center for Children and Families.

Verma has reportedly told state officials that she wants to use her regulatory power to convert Medicaid funding into a system of block grants — which would be an enormous rightward shift and probably a big cut in total funding.

  • CMS probably cannot do that on its own, experts said, but it could achieve something similar by approving caps on either enrollment or spending.

Where it stands: GOP lawmakers in a handful of states are looking to Utah, which has bet big on Verma’s authority, for signals about what’s possible.

  • Utah voters approved the full ACA expansion last year, but the state legislature overruled them to pass a more limited version.
  • By foregoing the full expansion, Utah passed up enhanced federal funding. It’s still asking for that extra money — a request CMS has never previously approved.
  • Utah will also ask CMS to impose a per-person cap on Medicaid spending — a steep cut that was part of congressional Republicans’ failed repeal-and-replace bill, and which may strain CMS’ legal authority.
  • If Utah doesn’t get those two requests, its backup plan is simply to adopt the full expansion.

What’s next: Utah is not the only red state leaning into Verma’s agenda, but it’s further out on a limb than any other.

  • Idaho, like Utah, overruled its voters to pass a narrower Medicaid bill. But it preserved an option for people to buy into the ACA’s expansion.
  • Alaska Gov. Mike Dunleavy has said he wants to take Verma up on her offer of block grants; so have legislators in Tennessee and Georgia. But in the absence of any detail about what that means, or what CMS will approve, that’s all pretty vague right now.

If CMS does move forward on any of this, it could face the same threat of lawsuits that have stymied its first big Medicaid overhaul — work requirements.

  • Those rules are on ice in two states because a judge said they contravene Medicaid’s statutory structure and goals. The same argument could await a partial expansion or tough spending caps.

“There’s a clear agenda here to get a handful of states to take up these waivers, which fundamentally undermine the central tenets of the Medicaid program — which [are] that it is a guarantee of coverage, and a guarantee of federal funding,” Alker said.





The Problematic Law And Policy Of Medicaid Block Grants


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Recent news reports indicate that the Trump administration is seeking to authorize states to convert open-ended federal Medicaid funds into a block grant system, and a formal proposal to do so landed at the Office of Management and Budget on June 4. House Democrats have written to Health and Human Services (HHS) secretary Alex Azar to express their concerns about the legal and policy implications of a block grant system. 

Not only are there strong legal arguments against efforts to implement a block grant policy, but block grants would also create challenges for states that chose to implement such a program. These legal and policy concerns are foreseeable. The Centers for Medicare and Medicaid Services (CMS) is not only courting yet another legal battle but also threatening access to important health care services—such as prescription drugs, as discussed below—for many of the most vulnerable patients.

Understanding Capped Spending Proposals

The Medicaid Act provides for unlimited federal matching funds for all state spending under Medicaid’s federal rules. This federal match is required by law and encourages states to implement both Medicaid’s mandatory benefits and its optional benefits, such as prescription drugs. This unlimited federal funding also has been central in helping states respond to economic shocks such as recessions and natural disasters and to unplanned programmatic demands such as public health emergencies or expensive new treatments. Switching Medicaid to a block grant program has been proposed by prior administrations and most recently appeared in different bills during the Affordable Care Act repeal-and-replace debates in 2017, but such proposals have been rejected by Congress.

Despite Congress’s refusal to alter Medicaid in this way, and despite long-standing and clear benefits to states of open-ended entitlement funding, the Trump administration has been inviting states, such as Alaska, to discuss capped spending, and other states are poised to respond to the new policy guidance. For example, Alaska commissioned a study of block grants; Tennessee’s legislature enacted a law commanding the governor to seek a block grant; Utah submitted a waiver application seeking per capita caps for Medicaid spending; and Texas commissioned a block grant study in 2017.

To understand this drastic policy change, a little more background is helpful. Medicaid operates through joint funding by states and the federal government, with the federal government matching states’ spending at a set rate that is informed by the per capita income of a state. A poorer state such as Mississippi has a higher federal match rate (76 percent in 2019) than wealthier states (for example, New York at 50 percent). In either case, for every dollar a state spends on Medicaid, it receives a matching amount of federal funds—without limit—making Medicaid a statutory entitlement for states participating in the program.

The federal match developed out of states’ inability to provide adequate medical support for their poor residents. Although the federal government gave states a kind of block grant (grants in aid) before Medicaid was enacted in 1965, the unlimited federal match that the Medicaid Act provides was designed to increase help for poor people while still allowing states to provide for the needs of their particular populations within a federal statutory baseline.

A block grant scheme would be very different from Medicaid’s statutorily required open-ended funding. Caps on spending could be designed in a number of ways, such as a block grant under which states would receive a limited, pre-budgeted amount of money from the federal government, or a per capita cap, which would pre-determine the amount of money spent per person enrolled in Medicaid. No matter the specific form of spending limitation, the administration’s planned policy is not lawful. 

Legal Barriers To Capped Spending Proposals

More specifically, the administration would have to grant Section 1115 demonstration waivers to states seeking these limits, because the Medicaid Act does not contemplate such spending limitations. Demonstration waivers can be approved under Section 1115 of the Social Security Act, which gives the secretary of HHS authority to waive Section 1902 of the Medicaid Act if a state’s proposed waiver will further the purposes of Medicaid. The goal of these waivers is to allow states to experiment with certain aspects of the Medicaid program to improve beneficiary coverage or care. Section 1115 does not limit federal spending on demonstration waivers, but since the Carter administration, it has been HHS policy to seek federal budget neutrality in 1115 waivers, although states may spend as much as they like.

At least two statutory problems exist for such waivers in this context. First, Medicaid spells out federal payment within Section 1903, which states that the HHS secretary “shall pay to each State…the [federal match] of the total amount expended…as medical assistance under the State plan….” This language is not waivable under Section 1115, which explicitly permits waivers of Section 1902 but not Section 1903. (HHS can approve more spending than Section 1903 contemplates to match a state’s expansion of Medicaid coverage, but it cannot waive Section 1903.) As a result, HHS cannot cap the Medicaid funds it disburses to states, either per person or programmatically, because it must pay the federal match for the “total amount” of a state’s spending. Even if a state wanted to cap its own Medicaid spending, that would necessitate disenrollment and require waiver of many other Medicaid Act requirements such as sufficient state Medicaid funding, equal coverage of beneficiaries across the state, and adequate payment to providers.

Second, block grants are not “likely to assist in promoting the objectives” of Medicaid, the legal standard for HHS to authorize states’ proposals for demonstration waivers. Medicaid’s statutory purpose is to “furnish medical assistance” to eligible beneficiaries, a phrase that recently has been dissected in the context of HHS’s authorization of several 1115 waivers for Medicaid work requirements. The federal court hearing challenges to the legality of work requirements has interpreted “furnish medical assistance” to mean that Medicaid must pay for care, not simply promote a generalized idea of “health” or decrease cost. Spending caps would certainly decrease enrollment (like work requirements already have in Arkansas) and limit care across all kinds of Medicaid coverage, the opposite of furnishing medical assistance.

Any new CMS policy will likely follow the same pattern as the 2018 State Medicaid Director policy letter authorizing work and other conditions of eligibility. That letter promotes waivers for work requirements under the guise of “health” and cost concerns (although, more generally, CMS has been clear that it disagrees with Medicaid expansion). HHS is likely to offer similar reasoning here, allowing new limitations with a predictable impact on the “undeserving” expansion population. 

HHS’s recent losses in the work requirement cases may pose an obstacle to capped spending proposals. A recent US Supreme Court case may also create barriers. In Department of Commerce v. New York, the Court concluded that an agency cannot engage in sham regulatory processes. The Roberts-led majority expressed deep concern about the secretary of commerce’s predetermined goal of adding a citizenship question to the 2020 census, calling the secretary’s reasons for adding the question a “pretext” and “contrived” because the publicly stated reason for adding the question was totally unrelated to the actual rationale.

This kind of mismatch is likely to exist in the block grant context as well. No state would be able to serve the purposes of Medicaid, that is, to furnish medical assistance, through a cap on spending, because no matter the structure, such a cap would foreseeably result in disenrollment. But HHS cannot permit state waiver applications that seek to disenroll beneficiaries, which means that HHS and states may offer pretextual reasons for authorizing block grants.

Policy Harms To Patients From Capped Spending

Even putting aside legal obstacles to a capped spending system, block grants are simply bad policy. Proposals of this kind are predictably harmful to both beneficiaries and to state economic interests. The Congressional Budget Office has recognized that block grants encourage states to take actions that include restricting enrollment for legally eligible beneficiaries, limiting mandatory and optional benefits, decreasing already low reimbursement rates (which may lead providers to abandon the program), a combination of all three, and more. In some cases, states may pursue such restrictions but then face unexpected economic pressures, such as a natural disaster or a recession. For example, Puerto Rico, which already exists under an alternative and limited Medicaid program, has experienced these problems acutely in the wake of terrible hurricane damage to the island.

Take just one example of a foreseeable area in which a state might seek to limit benefits under a capped spending regime: prescription drug coverage. Prescription drugs have always been an optional category of care under the Medicaid program, but all states have chosen to cover them. That choice comes with a set of obligations as well as a set of benefits for states and beneficiaries. States must cover essentially all Food and Drug Administration-approved drugs, so that beneficiaries are able to access medically necessary products. However, because this coverage requirement limits states’ bargaining power with drug manufacturers, state Medicaid programs are legally entitled to preferred pricing benefits. Medicaid programs receive large statutory discounts off the average market prices of the products they purchase, obtain the “best price” among private market payers if that price is lower, and are protected if the price of a drug increases faster than inflation.

Even with these discounts, Medicaid prescription drug spending is projected to grow faster than spending on other health care services, putting steady pressure on limited state budgets. These pressures are likely only to increase, as new drugs are introduced at ever-higher launch prices. Indeed, Novartis has just launched a drug with a list price of $2.1 million, setting a new standard. Even if these drugs represent good value for the price, states will struggle even harder to pay for these products if they are operating within an inherently limited monetary environment.

Capped spending would prompt states to make dangerous choices for patients. Initially, states might try to exclude individual drugs from coverage, if only to increase their bargaining power and obtain greater discounts on particular drugs. Massachusetts recently requested a waiver to do just that, asking CMS to allow it to exclude particular drugs from its Medicaid formulary that have demonstrated little or no evidence of efficacy. Massachusetts was undoubtedly concerned that spending on some of these high-cost, low-value drugs was crowding out valuable spending elsewhere in its Medicaid program.

However, CMS denied Massachusetts’ waiver request. Although CMS did not explain the legal reasoning behind its denial, it did suggest that a state may choose to exclude drugs if it forgoes Medicaid’s statutory discounts. This strategy, though, is unlikely to lead to savings larger than the program was able to obtain already. Only if a state severely restricts the drugs it will cover, and therefore severely restricts patients’ access to care, could cost savings occur.

States could make other choices that are even more harmful to patients. For example, nearly half of states impose limits on the number of prescriptions Medicaid beneficiaries are able to fill at one time. States that do not have such policies might adopt them, and states that have already implemented such limitations might seek to tighten them—even though recent research suggests that such limits may be harmful to patients. An extreme cost-cutting decision would be to drop prescription drugs from coverage, although this likely would not be states’ first choice for constraining Medicaid expenditures.

States already have significant flexibility within the Medicaid program, which always has been state specific. The administration’s desired policy change attempts to bypass the law, raising serious separation of powers concerns. And capped spending would very likely involve disenrollment and other cost-cutting measures that endanger the lives of the most vulnerable patients. Under a capped spending policy, it is foreseeable that states would face cost-cutting choices that harm the health of Medicaid beneficiaries of all kinds and especially those relying on access to care such as the medications necessary to manage chronic diseases and other life-threatening conditions.