On Thursday, Jan. 30, the Centers for Medicare and Medicaid Services (CMS) released the Healthy Adult Opportunity initiative, long-awaited guidance that would enable states to convert Medicaid funding into a block grant for adults under 65 who would not otherwise be eligible for Medicaid because of a disability or need for long-term care services. Very low-income parents, children, pregnant women, elderly adults and the disabled would not be included in the scope of this proposal. In exchange for accepting a cap on federal funding, states would have more leeway to decide which benefits to cover, and would get a streamlined process to add work requirements, add premiums and cost-sharing, and eliminate retroactive coverage or hospital presumptive eligibility. Though affected beneficiaries are largely those in the Affordable Care Act (ACA) expansion population, CMS Administrator Seema Verma said both expansion states and non-expansion states could use the program to receive more flexibility in their program administration.

Under the guidance, a state that receives a waiver from CMS could adjust benefits for the limited population, or “align benefits more closely to what is available through a commercial insurance benefit package.” The state would then be required to maintain spending on health services at a “level at least 80% of the target amount,” and to the extent the state achieves savings and demonstrates no declines in access or quality, CMS will “share back a portion of the federal savings for reinvestment in Medicaid.”

The initiative would provide states the ability to choose between two options to fund the target population. The first would be to receive a defined Medicaid budget on a per-enrollee basis, and the second would be to receive funding for the optional population in one set amount, though states that exceed their set target would not receive additional federal funding. The initial funding level for each state would be based on the prior year’s expenditures, adjusted based on what additional benefits states choose to add or which populations they choose to cover. The funding level would not be adjusted based on Medicaid enrollment, but would be adjusted for inflation and extraordinary events.

In anticipation of the release of this guidance, groups including the American Society of Clinical Oncology and the National Health Law Program released statements opposing the move, and called for CMS to block states from transforming any part of their Medicaid program into a block grant. In addition, 36 House Democrats sent a letter to Health and Human Services (HHS) Secretary Alex Azar and CMS Administrator Verma calling Medicaid block grants illegal under section 1115 and contrary to the objectives of Medicaid. It is expected that advocacy groups may engage in litigation to halt the new policy, arguing that this policy is a case of executive overreach and will lead to recipients losing access to health care benefits.

Though Tennessee is the only state that has actively submitted a block granting proposal, lawmakers in Oklahoma and Alaska have also expressed interest. Immediately following the release of the administration’s guidance, Oklahoma Gov. Kevin Stitt (R) announced at a press conference that the state will roll out a plan to expand Medicaid using the block grant guidance. Stitt added that the state is also considering including measures such as work requirements.

The release of this guidance comes after the administration’s Community Engagement Guidance, known as “work requirements,” has been challenged by the courts. When CMS rolled out the Community Engagement guidance in late 2017, many states—both expansion and non-expansion—expressed interest in the program as a way to control spending and encourage participation in the workforce. Arizona, Arkansas, Indiana, Kentucky, Michigan, New Hampshire, Ohio, South Carolina, Utah and Wisconsin received approval to implement work requirements approved by HHS, while other states’ plans are pending approval or are under review. Of the aforementioned states, Arkansas’, Kentucky’s and New Hampshire’s proposals have been held up by ongoing litigation.

Tennessee’s Waiver Application

On Sept. 17, 2019, Tennessee released for public comment a draft proposal to block grant its Medicaid funds, and on Nov. 20, the state submitted its final proposal to CMS. According to local news sources, the state’s original proposal received over 1,800 public comments, only 11 of which were positive. In submitting the formal proposal to CMS, Tennessee stated, “It is not the intention of the state to enumerate in detail in this document every innovation, reform, or policy change that might take place over the life of the demonstration, since the purpose of the block grant is precisely to give the state a range of autonomy within which it can make decisions about its Medicaid program.” Despite this, the fundamental design of the proposal remains largely the same as that originally proposed.

Tennessee has operated under Section 1115 waiver status since 1994; however, what they proposed is a reduced, aggregate sum of $7.9 billion without fixed specifications regarding eligibility, services covered, and enrollment and service delivery safeguards. Under the proposal, the federal government would pay the state this predetermined sum, and the state would be allowed to spend that allotment without federal oversight related to eligibility, coverage or access to care. This allotment would not be permitted to fall below a specified baseline amount, regardless of enrollment and coverage spending, though the state and government would then share the profit.

In exchange for accepting an aggregate funding cap, Tennessee requested an exemption from all future federal mandates, among other things. Tennessee’s proposed aggregate cap would apply to expenditures on behalf of children, adults, people with disabilities and the elderly, subject to exemptions outlined in the proposal. It would, however, be inflated annually at a rate that reflects Congressional Budget Office (CBO) projections on annual Medicaid spending growth.

On Nov. 26, CMS formally notified Tennessee their proposal was complete and formally opened a 30-day federal comment period. The CMS review process is now ongoing, though it is unclear how long the process will take and whether CMS will allow Tennessee to proceed. The parameters of the newly announced guidance do not closely align with Tennessee’s waiver application, so it is possible Tennessee may redesign their application to fit within the new guidance.

Outlook in the States

Since the passage of the ACA, 37 states including the District of Columbia expanded Medicaid benefits to adults under the age of 65 with incomes below 138% of the federal poverty level. It is unknown whether more states will expand Medicaid because of the new flexibilities afforded through the Healthy Adult Opportunity guidance, though many states have already been looking to make significant changes to their Medicaid programs. Proponents of block granting say the change would free states from federal requirements and allow them to explore new ways to increase coverage and reduce costs, though strategies to cut costs, such as the imposition of work requirements, have in some states had substantial impacts on coverage. In Arkansas, for example, the state terminated around 18,000 beneficiaries because of noncompliance prior to the court’s decision to halt the project.

Alternatively, states such as Texas are limiting Medicaid funds through targeted waivers. On Jan. 22, CMS approved a waiver allowing Texas to receive Medicaid funds for “Healthy Texas Women,” a women’s health program that provides women’s health and family planning services, but restricts funding for abortion providers including Planned Parenthood. Previously, Medicaid had required states to include “any willing provider” in its programs in order to receive federal dollars, a provision which has been upheld by the courts.

As a result of this decision, for which Texas applied in June 2017, opponents are beginning to challenge the administration’s waiver in court. At the same time, the decision is likely to usher in similar applications from other states seeking to preserve Medicaid funding for women’s health services, but also to block abortion providers. At this point, both South Carolina and Tennessee have waivers pending.