As CMS Guidance Looms, States Eye Medicaid Funding Caps

August 26, 2019

As CMS Guidance Looms, States Eye Medicaid Funding Caps

Reprinted with AIS Health permission from the August 26, 2019, issue of Health Plan Weekly

Though it’s now been more than seven months since news emerged that the Trump administration wants to use waivers to bring block grants to Medicaid, it’s still unclear when CMS will ever release guidance paving the way for states to try such an experiment.

However, the administration is moving closer to doing so, as a document titled “State Medicaid Director Letter: Medicaid Value and Accountability Demonstration Opportunity” has been on the Office of Management and Budget’s website since June 6.

“It may or may not come out any day now,” Joan Alker, executive director of the Georgetown University Center for Children and Families, tells AIS Health regarding that guidance.

What’s more, some states have made moves that suggest they would try to cap their Medicaid funding if given the green light by CMS — raising questions for the MCOs that serve a large portion of the country’s Medicaid beneficiaries.

The most ambitious proposal comes from Tennessee. In May, the state enacted legislation that instructs Republican Gov. Bill Lee to submit a waiver application to CMS seeking to move TennCare from an open-ended entitlement program to one with fixed federal payments, in exchange for more flexibility in how Tennessee spends that money. Lee said in early July that state officials are already working on such an application, which is due in November, according to the Times Free Press.

Meanwhile, on Aug. 1 Utah submitted a waiver request that would apply per capita caps to the state’s Medicaid program. A close cousin of block grants, Medicaid per capita caps would give states a fixed amount of federal money per enrollee. In Utah’s case, such a funding arrangement would be designed to apply to the population covered under Utah’s “partial” Medicaid expansion — or those with incomes up to 100% of the federal poverty level, rather than 138% as is the case with regular Medicaid expansion. CMS denied Utah’s request to receive a full federal funding match for only a partial expansion of Medicaid, Utah Gov. Gary Herbert (R) said in a document posted on the governor’s website on July 31.

Although CMS blocked that provision, the agency “did not indicate whether it would approve other provisions in the waiver request,” Herbert’s office said. “For this reason, there is value to the state in submitting the waiver and receiving feedback from CMS on all elements in the waiver request. A written response from CMS will help the state determine where the administration stands on these other elements and can help guide the creation of future waiver requests.”

Alaska is mulling its own Medicaid block grant waiver, but its effort is not as far along. On May 29, the state’s Dept. of Health and Social Services said it intends to award a contract to a consulting group to analyze how the state could implement Medicaid block grants, add work requirements for Medicaid enrollees and shift some Alaska Medicaid recipients to private insurance, the Alaska Journal of Commerce reported.

The way Alker sees it, Tennessee is “leading the charge” among states that might be interested in block grants or per capita caps. Tennessee’s proposal is also much broader than what Utah is seeking, she notes, as the Volunteer State wants to apply a block grant to its whole Medicaid program (the state did not expand Medicaid).

“Not only that, but we’re talking the long-term care services, children’s coverage — I mean, this is an extremely radical proposal,” Alker says.



Three MCOs — BlueCross BlueShield of Tennessee, UnitedHealthcare and Anthem, Inc. — serve Medicaid beneficiaries in the state, according to AIS’s Directory of Health Plans. In Utah, MCOs include Steward Health Choice, Molina Healthcare, University of Utah Health Plans and SelectHealth (owned by Intermountain Healthcare). Alaska’s Medicaid program does not contract with managed care plans.

“For Medicaid managed care plans, I think the overarching concern with expansion under a per capita caps or block grant model is the restriction, or kind of a ceiling, on funds, and therefore what would be a capitation rate,” says Alex Shekhdar, founder of Sycamore Creek Healthcare Advisors. Even without such limits, MCOs and states are “constantly pulling and tugging at rate sufficiency and what is actuarially sound,” Shekhdar points out. “What does actuarial soundness mean under a new paradigm of block grants?” he muses.

Indeed, UnitedHealthcare earlier this year said it would exit Iowa’s troubled Medicaid managed care program, becoming the second carrier to leave in 18 months amid MCO complaints about inadequate rates. And Kentucky’s Passport Health Plan earlier this year sued the state over Medicaid rate cuts — though it later dropped that lawsuit after Kentucky approved its deal to be acquired by for-profit Evolent Health.



Alker suggests that — at least initially — the financial picture might not look too dire in a state that uses a waiver to implement funding caps in its Medicaid program.

“We would expect to see that if they do approve some kind of block grant waiver somewhere, the administration is likely to give that state possibly some pretty favorable financial terms [that] would not be in place for all states,” she says. “When we see congressional proposals to block grant or cap Medicaid, they’re always about implementing significant cuts to the program, but in a waiver situation it’s conceivable that CMS would try to give a nice deal to that state to sort of lure them in, and so they could have a model to say, ‘hey, look at this, this is working great.’”

That, she says, would help the administration make the case to Congress to apply Medicaid funding caps to the whole country — as Republican lawmakers tried to do in 2017 amid efforts to repeal and replace the Affordable Care Act. “But it would be a sham experiment because congressional proposals are all about significant cuts,” Alker adds.



The way Shekhdar sees it, “there would absolutely be legal challenges” if Medicaid block grant or per capita cap waivers move from concept to reality. Looming over both funding-cap waivers and Medicaid work requirements waivers, he says, “is a conversation about what kind of administrative authority the HHS secretary has.”

Federal courts so far have thwarted the Trump administration’s efforts to let states experiment with requiring certain Medicaid beneficiaries to work to receive benefits — with Arkansas, Kentucky and New Hampshire all seeing their waiver approvals overturned.

But if that changes — for example, if appeals of those court rulings are successful — and the administration and HHS secretary get validation that they have “a wide berth for experimentation, then per capita caps and block grants become more reasonable,” Shekhdar says.

Absent that clarity, “they’re moving cautiously, recognizing that they still don’t have what I like to call a ‘letter of mark’ from the courts basically saying they can do what the hell they want in Medicaid,” he adds.

Alker takes an even stronger stance, saying “the administration really doesn’t have the waiver authority to approve something as sweeping as [Tennessee’s proposal], but as we know from the work requirements where they keep getting knocked down by the court, that hasn’t necessarily stopped them.”

Legal questions aside, block grants and similar federal restrictions can have very real consequences for Medicaid beneficiaries and state budgets, notes Jerry Vitti, CEO of Healthcare Financial Inc. “They force states to carry all of the risk in running this federal-state program, rather than sharing the risk,” he tells AIS Health. “This is challenging when states are dealing with increasing demand for services but have only a fixed budget to provide care. The result will be some people will ultimately go without care.”

Further, “it should be noted that we are at the apex or near-apex of the longest economic recovery in the history of the U.S. Recession is always inevitable,” Vitti adds. “How will states manage to care for growing numbers of people with fixed federal reimbursement?”

View the Times Free Press article at, the Alaska Journal of Commerce article at, Herbert’s document at and the pending CMS guidance at Contact Alker at and Shekhdar and Vitti via Joe Reblando at


By Leslie Small