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If Tennessee Governor Bill Lee has his way, the state may be the first in the nation to radically alter the way Medicaid is funded and administered, potentially leaving hundreds of Tennessee’s most vulnerable residents un- and underinsured. Ad Policy

Lee has proposed the conversion of federal funding for Tennessee’s Medicaid program, TennCare, to a block grant of $7.9 billion, adjusted each year for inflation. Any money saved would be split between the state and the federal government. Currently, 1.4 million or about one in five Tennesseans are enrolled in the program.

The block grant proposal follows Tennessee’s most recent decision last fall not to adopt the Medicaid expansion offered through the Affordable Care Act. Despite support from then-Governor Bill Haslam, the state’s Republican legislature chose not to adopt the plan, leaving 380,000 uninsured adults whom the expansion would have covered.

If the change in funding structure goes into effect, low-income patients can expect higher barriers to eligibility for TennCare, cuts to health care services, and lower reimbursement rates for care.

In an October 15 meeting at the University of Memphis, located in Shelby County, Tennessee’s highest user of Medicaid, the great majority of speakers lambasted the proposal. Doctors, attorneys, and TennCare recipients came out in numbers to register their skepticism of the state’s ability to oversee its own health care assistance program. Critics point out that Tennessee’s plan would effectively disincentivize Tennessee from health care spending, since the state gets to keep half of whatever federal money goes unspent, to spend on whatever it sees fit. A block grant, because of its static dollar amount, would thus bring cuts to enrollment and services. The Tennessee chapter of the American Academy of Pediatrics has expressed concerns that the proposal may have unintended negative consequences for children who are dependent on TennCare.

Tennessee is one of at least three states trying to get in on the action. Encouraged by Seema Verma, the Trump-appointed administrator of the Centers for Medicare and Medicaid Services, Governor Michael J. Dunleavy of Alaska has announced his intention to convert the state’s Medicaid funding into block grant dollars. And Republican Governor Gary Herbert of Utah has proposed a per capita Medicaid cap in the state, which would have much the same effect as a block grant.

But block grants would have an impact far beyond these states: They could bring about a sea change in the structure of Medicaid in America. That’s why conservatives elsewhere in the nation who are looking to implement similar changes are keeping a close watch on these bellwether states. Current Issue View our current issue

Since its inception in 1965, Medicaid has been an open-ended entitlement program, meaning that benefits are awarded based on need, without predetermined limits. This allows Medicaid to respond to changes in patient needs in real time, like, for instance, a natural disaster that necessitates a sudden increase in health care support services.

Under a block grant system, states would be given a lump sum for the year to distribute (or not). They would have the freedom to impose personal spending caps, and to exempt themselves from following pillars of federal Medicaid policy, like standardized eligibility requirements that ensure coverage for a state’s most needy, and reimbursement rates that reflect the actual cost of care.

Immunity from federal standards is written into Tennessee’s proposal: “It is expected that Tennessee will be exempt from any new federal mandates over the life of the demonstration that could have a material impact on the state’s Medicaid expenditures (e.g., mandates concerning eligibility or covered benefits)” the rule reads.

That’s an indication of the state’s intention to weaken government programs, said Keila Franks, who directs Medicaid policy for the Tennessee Justice Center, a public policy advocacy nonprofit based in Nashville. “They are an invitation to fraud and abuse by managed care contractors, who would be able to set their own rates and services without oversight,” she notes. Block grants would be, in essence, a state-run free-for-all.

The problem is that Medicaid is the public health insurance safety net of the US health care system. It provides free health insurance to almost 75 million people, or nearly a quarter of Americans. Prior to passage of the Affordable Care Act in 2010, Medicaid covered only children of low-income parents, pregnant women, the elderly, and certain low-income disabled groups. The ACA expanded Medicaid to cover adults making up to 133 percent of the poverty line.

Though the expansion was intended to apply to all states, the Supreme Court ruled in 2012 that a penalty for states that chose not to expand Medicaid was unconstitutional, in effect making expansion optional. Tennessee is one of 13 states that have opted out.

Tennessee’s small-government states’-rights-ism is in line with the Trump administration’s priorities. For its 2020 budget, the government has proposed plans to slash $1.5 trillion from Medicaid spending as part of a larger rollback on entitlement programs, as well as reducing funding to health agencies like the National Institutes of Health and Center for Disease Control. The budget has drawn opprobrium from groups on the left: The Southern Poverty Law Center called the move toward block grants “not only irresponsible [but] un-American.” In March, Health and Human Services Secretary Alex Azar told the Senate Finance Committee that the administration had been in talks with states about applying for Medicaid waivers.

Proponents say block grants would give states more flexibility to apportion Medicaid money as they see fit—but states already have broad leeway in administering Medicaid, and as public health advocates point out, it hasn’t been going well for Tennessee.

Testifying at a TennCare block grant hearing on October 1, Representative Jim Cooper of Tennessee’s fifth congressional district underscored the state’s poor public health outcomes, including high rates of preventable maternal deaths and opioid use disorder. “This radical, Trump-inspired plan would treat Tennessee like a guinea pig.… Our hospitals are closing, families are going bankrupt from medical expenses and people are dying. This is not the time for more state government experiments.”

Franks agreed. “Our state is at the bottom of so many public health measurements, including maternal mortality, infant mortality, and life expectancy. And over the past two years, TennCare has already cut at least 130,000 children from the program, the majority of whom were still eligible. TennCare is the last state agency that should be given carte blanche.”

As Representative Cooper implied, Medicaid caps or block grants are likely to result in the closure of hospitals that receive much of their funding in federal reimbursement for treating low-income, uninsured populations. A study published this month found that block grant funding would lead to dramatic revenue drops in community health centers, and decreased service capacity across health care organizations in the long term.

Dr. Adam Gaffney, a prominent progressive health care activist and president of Physicians for a National Health Program, says that block grants represent a “clear and present danger” to the health of low-income populations in states like Tennessee. “They are designed to slash federal spending in the face of public health emergencies or economic shocks,” he noted. “They amount to one more instance of this administration’s willingness to sacrifice the health care, and health, of our working class patients.”

There’s still a chance Tennessee’s move will be struck down. States can apply for changes in how they administer Medicaid under section 1115 of the Social Security Act—but the changes must promote Medicaid’s core purpose of helping low-income Americans get access to necessary medical care. Earlier this year, a federal court rejected proposed work requirements in Arkansas and Kentucky for failing to advance Medicaid’s goals. According to Sara Rosenbaum, who teaches health law at George Washington University’s school of public health, block grant proposals are likely to face similar legal challenges, on the grounds that their aim is to curtail rather than enhance coverage. “States do not have the authority to do this,” Rosenbaum said. And a good thing, too, for their bottom lines. “It’s incomprehensible that a state would so jeopardize its own financial stability by limiting itself to this kind of arbitrary cap.”

Other Republican attempts at health budgeting have been thwarted. A Congressional Budget Office report rated Republican health care bills in both the House and Senate as Medicaid coverage reductions, and estimated that either would result in an increase in the number of uninsured Americans by about 20 million.

But TennCare is sticking to its story. Deputy Communications Director Sarah Tanksley said that a block grant would actually bring more federal dollars to Tennessee, and that TennCare does not anticipate cuts to individuals’ benefits. The organization is currently in the process of reviewing comments on the proposal from the public comment period, which closed on October 18.

If Governor Lee and the state legislature choose to submit the proposal to the federal government for approval, and it survives near-certain legal disputes, Medicaid as we know it will face an existential threat.