January 21, 2021

The Modified Block Grant amendment to Tennessee’s Section 1115 waiver was approved on January 8, 2021, with the purpose of demonstrating that better financial alignment between the state and CMS will result in better health outcomes for Tennessee Medicaid (TennCare) members.

As originally designed by the state, the amendment in substance shares little in common with the traditional meaning of the term “block grant.”  For example, left intact is the FMAP-based state-federal funding partnership of the program, as well as the requirement that the state remain subject to an annual budget neutrality or aggregate cap for its total (state and federal) annual spending.  What changes is the state’s ability to earn federal dollars to be reinvested in its program in addition to the federal funding it receives from the FMAP calculation.

The state’s design of this shared savings approach was largely driven by its historical performance of underspending its aggregate funding cap each year.  While this amendment now authorizes the state to begin earning a percentage of the federal portion of these unspent funds annually, CMS re-based the cap from its historical level to its actual program expenditures in 2019. This new 2019 base year expenditure level will be calculated for each eligibility category of the state’s Medicaid population and will be trended forward for each demonstration year using the applicable trends in the President’s budget, and will decrease (or increase) as the state’s Medicaid population decreases (or increases) by more than one percent.  The cap is scheduled to be re-based again at the mid-point of the ten-year demonstration. Clearly, the re-basing of the cap will impact the amount of additional federal dollars the state can earn in any given year.

Other notable Medicaid policies embedded within this waiver include (not directly related to this new funding mechanism) TennCare receiving authority to implement a closed formulary for adults while maintaining its ability to participate in the drug rebate programs, receiving authority to add benefits to its program without undergoing a traditional waiver amendment process, and losing it decades-long waiver of retroactive eligibility for children and pregnant women.

About the Author: Gabe Roberts is a Senior Strategic Advisor to Sellers Dorsey and a former Director and CEO of TennCare, Tennessee’s Medicaid Program. In addition to providing timely knowledge and analyses such as this piece, Gabe offers a wealth of knowledge in Medicaid, payment delivery systems, and health care policy and  provides high-level strategic guidance to team members and clients on Medicaid financing initiatives. During his tenure as Director, Gabe designed this modified block grant funding model proposal, championed innovative policies for members with intellectual and developmental disabilities, and drove the further adoption of TennCare’s value-based purchasing model. Learn more about Gabe and get in touch with him here.