Earlier this week, Tennessee unveiled a partial Medicaid block grant/shared savings proposal. I don’t think it will be going anywhere as the proposal has significant legal hurdles but we should look at the high points.
- Block grants shift Medicaid from an entitlement with open federal match funding to chunks of cash with far less marginal flexibility
- Tennessee proposal is not a full block grant
- significant carve-outs
- dual eligible, foster care and folks with intellectual and developmental disabilities
- prescription drug spend
- significant carve-outs
- Tennessee would take on significant new technological and pricing shock risk (think Hep C on steroid problem)
- Legally, it is likely to be banana-pants so the end result is a lot of billable hours for the attorneys.
With the exemptions, the people who are likely to be under the shared savings proposal are kids, pregnant women and disabled individuals.
Block grants transfer shock risk from the federal government that has no balance budget constraint to states which almost always have balanced budget constraints. Balanced budget constraints bite hardest in economic crisis.
We have a good example of what a true block grant looks like when there is a major shock event; Puerto Rico Medicaid operates under a block grant and the system failed with Hurricane Maria. I’ve been concerned for years about how Zika would impact state Medicaid programs as an example of a medical shock.
Medicaid block grant procedures would give states a fixed head payment for each enrollee. It could vary by category of assistance and a few other criteria but the fee would be flat within subgroups by the number of enrollees…. disproportionate clustering of high cost conditions will be significantly worse off.
The medical shock would be a super high cost condition that mainly hits people in fairly low per capita block grant payment cells. All of a sudden, previously cheap subpopulations become expensive and the financial risk is dumped on a state. For Tennessee, that risk is not Zika , but the mechanism is the same.
More importantly, Nick Bagley of the University of Michigan Law School does not think that this waiver application can pass legal muster as he explains at The Incidental Economist
Setting aside the dubious policy merits of block grants, however, I don’t think the proposal is legal. I don’t even think it’s close.
Under section 1903 of the Medicaid statute, the federal government must pay a fixed “match rate” (known in the statutory lingo as “the Federal medical assistance percentage”) to every state that participates in Medicaid. In Tennessee, the match rate is 65.21%. That means that, for every $1 that Tennessee spends on its Medicaid program, the federal government kicks in about $2….
it’ll need a waiver from HHS to make these changes. And section 1115 of the Medicaid statute does allow HHS to waive lots of the law’s restrictions in connection with experimental projects that are likely to assist in promoting Medicaid’s objectives….
there’s a more fundamental problem with Tennessee’s proposal. You can’t use section 1115 to waive section 1903. To the contrary, section 1903 is pointedly omitted from the list of statutory provisions that HHS is empowered to waive. [all emphasis is original]
So the most likely course of action is a waiver will be turned down by CMS due to it being outside of its power and if that does not happen, then as soon as the waiver is approved, plaintiffs will be in court for a case they should readily win.
There are a few key things to think about though.
First, there is probably space for a well designed shared savings programs with catastrophic risk shock absorbers and strong guardrails for beneficiary protection and anti-cream skimming angles. I don’t think that this is that program though.
Secondly, the Tennessee proposal is the world that Graham-Cassidy wants to move towards. And that will be the GOP health plan next time they have a trifecta.