The Biden Administration CMS Unwinds the Tennessee “Block Grant”

Two and a half years ago, on January 8, 2021, with considerable fanfare, the Trump administration CMS announced the approval of a Medicaid “aggregate cap waiver” for Tennessee.  The Governor was more forthcoming, trumpeting the state’s receipt of a “block grant waiver.”  You say “aggregate cap,” I say “block grant,” let’s call the whole thing off.  And that is exactly what happened on August 4, when the Biden administration CMS signed off on “TennCare III,” a 10-year extension of a section 1115 waiver for Tennessee.

It’s understandable this is news to you, since there was no fanfare whatsoever about it from the otherwise chatty CMS newsroom on that Friday afternoon or since. (The Governor’s newsroom has also been silent).  But the August 4 approval marks an important milestone:  the end of the federal government’s efforts—at least through 2024—to cap its financial exposure for Medicaid under the ideological banner of “block grant,” shifting the risk of enrollment growth, health care price inflation, not to mention epidemics and natural disasters, to states.

The Tennessee saga began in September 2019, when the state posted a proposal to convert a portion of its Medicaid program, known as TennCare, into a block grant. The proposal came in the form of an amendment to Tennessee’s long-running section 1115 demonstration, which, for all intents and purposes, is the state’s Medicaid program. (The use of the term “demonstration” here is a polite fiction; initially approved in 1994 to test statewide mandatory Medicaid managed care, it has long since made its point).

Four months later, the Trump administration CMS issued guidance inviting states to apply for section 1115 waivers to “provide cost-effective coverage using flexible benefit designs under either an aggregate or per-capita cap financing model” for non-elderly, non-disabled adults, including Medicaid expansion adults.  (Never mind that Tennessee was then, and resolutely remains, a non-expansion state, as financially irrational as that is).  On January 4, 2021, just two days before the insurrection, the Trump CMS approved a 10-year extension of Tennessee’s 1115 “demonstration” that included an aggregate cap and a financial windfall that eased any fiscal pressure on the state to take up expansion.

My colleague Leo Cuello has tracked what happened over the next year and a half: the filing of a lawsuit by advocates, a new public comment period, a Biden CMS letter to the state asking it to try again, a new state amendment, and another round of public comments (in which CCF and other national organizations participated).  Then, on August 4, came the under-the-radar approval of TennCare III.  The “aggregate cap” is gone, replaced with the type of budget neutrality limit that is standard operating procedure for section 1115 waivers.

There are several other moving pieces in the 370-page approval.  Notably, it does not resolve all of the issues in the pending litigation, including the 10-year duration of the “demonstration” and the waiver of 3-month retroactive coverage.  But that, Dear Reader, is a story for another blog.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.