Tennessee wants to block grant Medicaid. Is that legal?

Earlier today, Tennessee released a draft proposal to introduce block grants into its Medicaid program. 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.

Tennessee wants to change that financing structure. Instead of matching dollars, Tennessee would like an up-front, lump-sum payment—a “federal block grant”—that’s calculated to cover the anticipated expenses of its Medicaid population. Because Tennessee would have a fixed sum of federal dollars to spend, the state would have an incentive to economize on Medicaid. Any savings, Tennessee says, would be split 50-50 with the federal government.

As Tennessee recognizes, 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.

Now, I’ve written before that I’m not at all sure that block granting Medicaid counts as an experiment that serves Medicaid’s purposes. But 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.

So you can’t use Medicaid waivers to change Medicaid’s financing structure. And that’s exactly what Tennessee is proposing to do.

Under the proposed waiver, the state would no longer get $2 for every $1 in Medicaid spending. It would instead get a lump sum every year that’s calculated to cover its anticipated Medicaid expenditures. If Tennessee spends more than it expects, the effective match rate would be lower than 65.21%. If it spends less, the effective match rate would be higher. Either way, the proposal would violate section 1903.

I’d been thinking that Tennessee would find a way to conform its block grant proposal to section 1903. But it looks like it didn’t even try. Indeed, it’s telling that Tennessee doesn’t even mention section 1903 in its proposal—a glaring omission for a state that wants to make a fundamental change to how the federal government pays for Medicaid.

Maybe Tennessee has an argument for why this proposal is consistent with the Medicaid statute. I’m all ears. For now, however, I don’t see how to square what Tennessee wants with the language of the law.


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