The Devil in the Details: Examining CMS' Medicaid Block Grant Proposal

Stakeholders raise concerns that guidance unveiled by CMS on Medicaid block grants could lead to drastic cuts in the safety net program.

After months of anticipation, the Centers for Medicare & Medicaid Services on Thursday rolled out its block grant guidance for Medicaid. Stakeholders are already raising concerns that the proposal, which is optional for states, has the potential to cut billions of federal dollars from the program and shred the safety net.

Allison Orris, counsel for Manatt Health in Washington, D.C., and a former senior policy advisor at CMS and associate administrator for the Office of Management and Budget's Office of Information and Regulatory Affairs, offers her assessment of the proposal, and attempts to answer some of the concerns raised by stakeholders.

HealthLeaders: What's your overall impression of this proposal?

Orris: This was touted as something that would really give states a lot of the flexibility that they've been asking for. And yet, when you look at it, it appears at first read to be very much changing the fundamental bargain that states make with the federal government to share in the financing of Medicaid. And yet it doesn't give states a lot of new flexibility.

For example, some states that have not yet expanded Medicaid have wanted the authority to do a partial expansion or have an enrollment cap and still get that enhanced federal funding. That's not permitted here and there's very understandable legal reasons why CMS couldn't go that far.

What that leaves us with is guidance that appears to shift a lot of financial risk to states, giving them less money than they would get under a traditional Medicaid expansion in exchange for some new forms of flexibility, but not sweeping forms of flexibility. Still, the consequences in a state that picks up the option could be very harmful to beneficiaries

The thing that states will want to look at is the money and how the money could put them at risk, because I'm not sure they're getting a whole lot more in exchange.

(Photo courtesy of Manatt, Phelps & Phillips, LLP. Pictured: Allison Orris, counsel.)

HL: Provider stakeholders say this could lead to an increased number of uninsured and imperil the Medicaid safety net. Is this accurate? 

Orris: There is a risk of it. This is giving states the opportunity to impose either per capita caps or aggregate caps block grants on the Medicaid expansion population and certain other non-elderly, non-disabled populations.

For those populations that would be subject to capped funding, it really would be a fundamental change in the Medicaid program. It would limit funding that's available and it would give states more flexibility to impose higher cost sharing, or changes to enrollment practices that might make it harder for people to get enrolled and stay enrolled.

Also, CMS is promising some forms of relaxed programmatic oversight, such as less oversight on managed care contracting that could lead to lower payment rates for providers and plans, which would have a serious impact on access.

HL: There are also concerns that communities could lose access to care under this proposal, especially in rural areas that depend on Medicaid funding. Is this possible?

Orris: The devil is always in the details. This is optional for states. This is different than what Congress tried to do with repeal and replace. We're not going assume that it's going to be picked up nationwide because it is not a deal for states.

But in states that do adopt it, there will be less money. States will have to make choices about how they're spending their money. They could reduce provider payments and adopt programmatic flexibilities that could reduce access to care for beneficiaries. There's also a provision for states that adopt the block grant model to divert money outside of Medicaid for other uses. So, the concerns that the stakeholders are citing are valid.  

HL: How do you see this block grant option evolving over time?

Orris: The Medicaid program has been protective of patients and providers. Medicaid funding is an entitlement to states for matching funds and if you take away that promise of matching states dollar-for-dollar in their contributions, if they are increases in enrollment that aren't projected, [or] if there is an increase in an expensive cancer therapy, funding under the caps may not be adequate to pay for care that's needed for beneficiaries. So, where do the cuts come from? It could certainly come to provider rates and CMS has indicated that there'll be a little bit less oversight. So, putting all the pieces together, there is a risk that access under this program could really suffer.

HL: What incentives would a state have to take up this block grant proposal?

Orris: That it is going to be something that states are going to want to look at. CMS is saying that they are offering flexibilities, but a lot of those flexibilities are already available under regular Section 1115 demonstrations. You don't need to have a block grant in order to implement work requirements. You don't need to have a block grant to have higher premiums for the Medicaid population. So, CMS has kind of packaged this together and says that there's an application template that will streamline approvals.

But it will be somewhat difficult for CMS and states to negotiate the details of cap funding. States are going to want to dig in and make sure that the funding calculations that CMS is approving as part of the deal makes sense for the state. That is not going to necessarily be a speedy endeavor.

While there are some new flexibilities that a state might want to take advantage of as a part of this, there are also new forms of oversight. There are continuous performance indicator reporting requirements. This isn't a free lunch for states. They're going to have to monitor quality, monitor spending, and report to CMS.

What is it the states are getting and what will the states have to do, and what risks will the state take on in order to get "flexibility," much of which they could get under a regular demonstration?

HL: Is this block grant option similar to what Tennessee proposed a couple of months ago?

Orris: No. One thing that is notably different is that Tennessee proposed its block grant for its mandatory population. It kept on the table that maybe some savings in the program could be used later to expand Medicaid. But it was really about block granting spending for the current Medicaid population, which is limited to mandatory Medicaid populations.

The other difference is that Tennessee has constructed its block grant using spending data and a trend rate that is different than what this guidance proposes. This guidance is more aggressively designed to constrain Medicaid spending over time.

HL: What sort of resistance should be anticipated if states adopt block grants?

Orris: States that opt into this and apply to CMS for a block grant are likely walking into a prolonged legal fight. This is a new use of the Section 1115 demonstration authority and, just as we've seen with work requirements, I would anticipate that litigation will follow. That is a consideration that states will want to have top of mind as they think about the cost and the uncertainty that litigation would present.

HL: What would be the grounds for a lawsuit?

Orris: There is an argument that limiting otherwise available funding and forcing states to make trade-offs in terms of provider payments or levels of benefits may not further the objectives of the Medicaid program and, therefore, might not be an appropriate use of the Secretary's demonstration authority. 

It is also possible that there could be a challenge that issuing this guidance through a state Medicaid director letter is not the appropriate avenue and that it should be done through rulemaking.