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.
Proposals to change federal funding for state Medicaid programs using block grants or per capita caps could affect federal actuarial soundness requirements for Medicaid managed care capitation rates. In this article, Milliman’s Michael Cook discusses the following three scenarios that could play out if changes to Medicaid funding happen.
• The continuation of federal actuarial soundness requirements under revised federal funding is a plausible scenario.
• The establishing of individual state requirements if federal requirements are eliminated.
• The continued development of actuarially sound capitation rates by individual states even in the absence of any soundness requirements.
Republican Medicaid reform proposals have thus far focused on converting federal funding from the current approach of proportional federal and state financing to either block grants or per capita caps. While these funding approaches may sound relatively straightforward, understanding the implications of such changes requires consideration of several factors.
In this paper, Milliman consultants break down the detailed considerations into two primary categories: initial benchmark development and annual growth rates. Defining the assumptions and methodologies used to establish benchmarks and growth rates is key to aligning service cost with funding under alternative federal financing for Medicaid. Without consideration of these concepts, the actual cost of Medicaid relative to the federal budget for Medicaid will begin to diverge, and the gap may become wider over time. As this theoretical funding gap emerges, states will be at increased risk for funding additional program cost.