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.
Federal financial participation (FFP) is not available for Medicaid services for individuals between the ages of 21 and 64 who are patients in an Institution for Mental Disease (IMD). This IMD exclusion is a long-standing component of Title XIX (Grants to States for Medical Assistance Programs) of the Social Security Act (Title XIX), which has recently come under scrutiny because of the combination of inpatient psychiatric capacity constraints and rapid enrollment growth of the Medicaid population.
The final Medicaid managed care regulations clarify the use of IMDs as an “in lieu of” service. In the near term, states will need to carefully weigh their options based on their specific needs for inpatient psychiatric and subacute psychiatric capacity. The risk is that adding too much inpatient capacity could induce utilization and drive members away from community-based alternatives. The managed care rule also contains some rate-setting differences for IMDs as an “in lieu of” service. Beyond the impact of the final rule, IMDs will continue to be a topic of interest to state policy makers as they bolster the continuum of behavioral health and substance use disorder services.
The Centers for Medicare and Medicaid Services (CMS) has had a policy in place since Medicaid began that does not provide FFP for any services for a member between the ages of 21 and 64 either inside or outside an IMD while that member is a patient in an IMD. This law, generally termed the “IMD exclusion,” has evolved over time but has largely remained unchanged. Outside of this age band, full FFP is provided as long as the service is included in the state plan for the over-65 population. The under-21 population is covered as an Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) service at the state’s regular match rate. The IMD exclusion applies to fee-for-service and managed care delivery systems.
This setting exclusion is defined in the Medicaid statute under 1905(a)(29). When Title XIX was passed by Congress in 1965, the treatment of mental illness was primarily performed in an institutional setting. States built and operated large mental institutions to house and feed people with mental illness. The IMD exclusion was included to ensure states would continue to be responsible for the costs of those large hospitals. Over time, a few limited mechanisms have been developed to pull down FFP for IMD utilization within the exclusion age corridor of 21 to 64 years of age. In some cases, states may have already utilized IMDs as an “in lieu of” service. Milliman’s Mat DeLillo provides more perspective in this article.