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Medicaid Block Grants – Can Tennessee Learn from Puerto Rico?

The Commonwealth Fund is out with a new report examining how Puerto Rico’s long-standing experience operating under a Medicaid block grant may predict how states would fare under block grants and per capita caps that limit federal funding.

The report is timely.  During its last weeks in office, the Trump Administration approved a Medicaid block grant for Tennessee.  Under the proposal, Tennessee will now receive a capped amount of money for its Medicaid program instead of the open-ended federal contribution enjoyed by all other states — which increases with higher enrollment and associated health costs.

Tennessee may wish to pursue its new plan with caution.  The Commonwealth Fund report found that Puerto Rico’s block grant funding resulted in vastly reduced patient services and led to large federal Medicaid funding shortfalls, which contributed to the U.S. territory’s fiscal and debt crisis.

Tennessee’s Medicaid Plan

Back in November, Tennessee opened its plan up to public comments. Of the 1,800 comments received, 11 were positive.  Tennessee made some changes in response to the comments, but the proposal is very open-ended and lacking in specificity. It points out that the reason for the proposal is to gain flexibility, and being very specific about the plans would cut into that flexibility.

The block grant plan is being described as a waiver, because it allows States to spend Medicaid money as they see fit, and even to use some of those funds for things not related to Medicaid, in exchange for acceptance of a cap on Medicaid funding.

What’s a Medicaid cap?

Normally, States spend Medicaid funds as they are needed, and are reimbursed according to a system that reimburses states for a percentage of their costs, based on the State’s economic position. Some states can receive as much as 83% of their spending in the form of federal dollars. Tennessee receives 61% reimbursement.

In every case, the funds received are based on the amount spent. If a State has rising enrollment, rising costs because of events like the COVID-19 pandemic, or increased expenditure resulting from rising costs, federal funds keep up with those additional costs.

With a block grant, the federal government pays only the amount of the annual grant, regardless of the amount the state actually spends.

The promise of the block grants is that States can make their own decisions about how to spend Medicaid money, and can benefit financially by spending less. If Tennessee spends less than the amount awarded to the State, it could keep up to 55% of those funds to use for other programs.

Early versions of the proposal listed new Medicaid goals such as “independence” and “responsible decision-making,” Now the focus is on flexibility, suggesting that States will be able, without federal interference, to provide health care for needy residents at a lower cost.

How have Medicaid caps worked out so far?

The Central for Budget and Policy Priorities estimates that just four states would have received the same amount of funding in the first decade of the 21st century if they had used the waivers.

But we don’t need to rely on estimates. Puerto Rico has had a Medicaid block grant for decades and can provide a real-world example of the effects of such grants.

Medicaid, health assistance for needy families, was first established in 1965. Puerto Rico was given a capped block grant in 1968 when it was found that federal Medicaid costs for Puerto Rico had increased by 7.5% over the first few years.

While Puerto Rico would receive 83% reimbursement if it were a State, the matching rate has been set at 55%. Yet due to the annual spending cap, between 2012 and 2019, Puerto Rico’s annual block grant actually covered only 15% of Puerto Rico’s healthcare costs.

The Commonwealth Fund report explains that this unusually low federal matching percentage is due to two factors: (1) the U.S. territory’s initial block grant amounts were initially set at arbitrarily low levels unrelated to patient needs, and (2) the block grant is annually adjusted at a rate that fails to keep pace with the territory’s inflationary costs.

How does the block grant affect needy people?

Tennessee’s waiver does not allow the State to cut off coverage for individuals. In Puerto Rico, however, far fewer people are eligible for coverage than would be if Puerto Rico were a state. This is caused by several factors:

  • Puerto Rico has its own poverty level to qualify for Medicaid coverage, which is much lower than the poverty level in the States. A family of three in Puerto Rico cannot receive Medicaid if they earn more than $9,000 per year. A family in a state is eligible if they earn $29,435 or less.
  • This definition of poverty was frozen in 2014, though the U.S. poverty level has been readjusted every year. This is the case even though the cost of living is not lower in Puerto Rico than in the States.
  • Instead of changing the law to make Medicaid more equitable in Puerto Rico, Congress makes occasional grants of additional funds to ward off disaster, making it impossible for the territory to make future plans for healthcare or even to negotiate with medical providers.

Therefore, Puerto Rico provides healthcare for far fewer people than it could if it did not function under a block grant system.

In addition to serving fewer people, Puerto Rico also offers less coverage to those who are served. The law which Tennessee is having waived requires 17 services. Of those 17 required by law, Puerto Rico is unable to provide the following:

  • nursing home care
  • home health care
  • nonemergency medical transportation
  • nurse practitioner services
  • nurse midwife services
  • emergency care for individuals ineligible because of immigration status
  • freestanding birth center services.

Puerto Rico also pays medical providers less. This probably contributes to the loss of medical professionals that has plagued Puerto Rico for years.

The Commonwealth Fund concludes its report by noting that “converting federal Medicaid financing to block grants or per capita caps would likely result in large federal funding cuts that would increase for states over time. That, in turn, could lead to cuts to eligibility, benefits, and provider rates that could result in state Medicaid programs experiencing many of the serious challenges Puerto Rico faces, especially if states are given flexibility to cut eligibility and benefits in ways not permitted today.

The report further suggests that “[o]ne policy option that could facilitate substantial improvements to Puerto Rico’s Medicaid program would involve replacing Puerto Rico’s block grant with uncapped funding” – essentially the opposite approach to Tennessee’s initiative.

Read the report:

How States Fare Medicaid Block Grants Per Capita Caps Puerto Rico _ Commonwealth Fund

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