What are the risks and considerations of Medicaid block grants?

In September 2019, the State of Tennessee, Division of Tenncare, released a draft version of Amendment 42 to its Section 1115 Demonstration Waiver, “Tenncare II Demonstration.” With the exception of pharmacy and certain waiver services, the vast majority of Tennessee’s Medicaid program services are funded under this Section 1115 Demonstration Waiver authority. Amendment 42 makes Tennessee the first state to take concrete steps to engage the Centers for Medicare and Medicaid Services in a proposed block grant funding methodology.

A block grant funding arrangement is attractive from a federal financing perspective because it establishes an authorized level of spending, creating an incentive for states to better control costs. States could also find this structure attractive because it includes a savings component if efficient management of the program produces costs below the authorized spending levels.

This paper by Milliman’s Jeremy Cunningham and Mat DeLillo discusses the risks and considerations of changing Medicaid’s funding formula to a general block grant structure.