House Tries to Put the Brakes on Block Grants in Medicaid

July 4, 2019

House Tries to Put the Brakes on Block Grants in Medicaid

Reprinted with AIS Health permission from the July 4, 2019, issue of RADAR on Medicare Advantage

Signaling House Democrats’ first attempt to rein in CMS’s enthusiasm for state Medicaid demonstrations that potentially scale back enrollment and spending, House Energy & Commerce Committee Chairman Frank Pallone, Jr. (D-N.J.) issued a detailed letter to HHS Sec. Alex Azar accusing the administration of putting its “radical agenda” ahead of the law as it actively seeks out state applications to pilot Medicaid block grants or per capita caps.

The June 27 letter was prompted by recent legislative actions in Utah and Tennessee directing pursuit of waiver authority to implement block grants as well as expected new guidance from CMS on how states may cap spending on their Medicaid programs through section 1115 demonstrations, wrote Pallone, whose committee has oversight of Medicaid. (A state Medicaid director letter titled “Medicaid Value and Accountability Demonstration Opportunity” is currently under review at the Office of Management and Budget.) He also expressed concern with a March letter from Alaska Gov. Michael Dunleavy (R) indicating to President Trump that CMS Administrator Seema Verma had urged his state to become the first to receive Medicaid dollars as a block grant.

But Alex Shekhdar, founder of Sycamore Creek Healthcare Advisors, says he suspects another driving force behind Pallone’s letter was that the National Association of Medicaid Directors recently held a meeting in Utah at which CMS met with newly appointed state Medicaid directors. And knowing that a state Medicaid director letter is forthcoming, it was likely made clear that “if states are amenable to a block grant proposal, they’ll know to approach CMS on that,” he suggests.

“CMS is very confident that they’re going to make it through the judicial scrutiny that’s going on right now with 1115 waivers,” he says, referring to HHS’s appeal of recent District Court rulings invalidating its approval of work requirements in Arkansas and Kentucky (RMA 4/4/19, p. 8). And once the letter comes out, “it will open the door [for block grants] and it’s just a matter of who will be the first through the gate,” adds Shekhdar.

While Utah has submitted a section 1115 demonstration application requesting the use of per capita caps for a limited Medicaid expansion population (RMA 6/6/19, p. 8), other states with “trifecta control” (i.e., they have a Republican governor and a Republican-controlled legislature) that could more widely pursue block grants are Alaska, Florida, Georgia and Tennessee, points out Shekhdar. “A very interesting candidate would be Tennessee, because it has a long history of Medicaid managed care use and a very stable state budget, as evidenced by having a really good bond rating,” he says. As a result, that state might be “healthy enough” to try a block grant/per capita cap model, but real “game changer” states would be Florida or Georgia, which have larger Medicaid programs.

Medicaid insurers, however, may have concerns because a capped financing model could theoretically put limits on the capitated payments they receive, “or if there’s a spike in acuity…[MCOs] wouldn’t be able to seek any additional relief from the states because their [funding] is capped,” he observes.

Now that the Democrats have control of the House, Shekhdar says it’s no surprise that they’re seeking additional transparency in the waiver approval process, “looking for weak spots and…publicly shaming the concept [of block grants] by highlighting what they perceive would be a negative impact to beneficiary experience…which is right now the anti-block-grant playbook.”



Pallone in his letter noted that the implementation of a block grant or per capita cap in Medicaid requires a statutory change and although section 1115 demos allow the HHS secretary to waive certain sections of federal law, they must likely “assist in the promotion of the objectives” of Medicaid. But Pallone said capping the Medicaid program fails to do that and would instead “result in reduced or loss of benefits for individuals, loss of coverage, and imperil the financing of critical health care providers.”

What all conservative waiver elements (e.g., work requirements, lockout periods) achieve are “cuts to both dollars and people, which is nothing new, although now it seems to be more ‘death by a thousand cuts’ than it was when [former House Speaker] Paul Ryan proposed the American Health Care Act,” remarks Jerry Vitti, founder and CEO of Healthcare Financial, Inc., referring to Congress’ failed 2017 legislative efforts to repeal and replace the Affordable Care Act.

But block grants are “an insidious way of cutting overall spending,” he continues. “I think it’s a red herring to say [to states], ‘You can have more flexibility if you take block grants.’ The feds can give you as much flexibility as you want under the current system. It doesn’t have to be a trade-off.”

Pallone’s letter requested eight different categories of information related to the upcoming state Medicaid letter. An HHS spokesperson confirmed receipt of the letter and said the agency plans to respond.

View the letter at Contact Shekhdar and Vitti via Joe Reblando at


by Lauren Flynn Kelly