Tennessee’s Medicaid block grant

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
  • 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.



6 replies
  1. 1
    rikyrah says:

    they refuse to expand Medicaid under Obamacare, but wanna do this shyt.

  2. 2
    Mike in NC says:

    From all that I’ve read, Tennessee must be a pretty fucked up place to live.

  3. 3
    opiejeanne says:

    Why do they want to do this? It makes no sense to turn it into a block grant.

    Is it in order that someone or several someones will be able to line their pockets?

  4. 4
    Duane says:

    @opiejeanne: Ideology is everything to these fascists. That includes Obama-hate and yes, grifting the system. Actual healthcare means nothing to them.

  5. 5
    elliott.gorelick says:

    I hate to contradict an expert like you, but I think you are wrong about the risk. A significant shock (like hep c) involves a long-term, expensive condition to treat. If people die fast even in great numbers, it is a tragedy, but self-limiting in terms of cost. Now look at the two carve-outs and you see the assh*lish genius in this proposal (assh*le because it was undoubtedly written and vetted by the GOP and they are all assh*les). If you have a long-term expensive condition that allows you to be functional then the solution is likely to be pharmaceutical (think hep c or AIDS or RA). If you have a long-term expensive condition that makes you dysfunctional then you become classified as disabled/dual eligible. The exclusion zone is perfectly targetted to avoid a shock. There are very few (can’t think of any off the top of my head) long-term, expensive treatments that allow people to continue to live their normal lives and are non-pharmacological. There are very few long-term expensive conditions that don’t leave you disabled unless there is a pharmacological treatment. There are very few short-term expensive conditions that are the kind of spending shock described that would actually be that expensive to treat (resource constraints alone would limit exposure) since people would either die or get better quickly or move into long-term (by definition)

  6. 6

    @elliott.gorelick: I can see what you are saying with carve-outs (CAR-T is likely to not be included in the carve-outs) but I am guilty of short-hand. The Hep-C shock was the one time price shock of an $90,000 cure that was well below lifetime NPV costs BUT also massively above typical year to year costs of the next best alternative.

    Most people on Medicaid churn on and off fairly quickly. The drugs and treatments that are both cost effective and net cost savings but collapse all of the expense into one or at most a few episodes over a very short time period is a massive Medicaid budget shock

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