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Tennessee is formally asking the Trump administration today to transform its Medicaid program into a block grant — the first real test of an idea that has captivated conservatives for years.

Why it matters: Tennessee's request will test the bounds of what the Trump administration can do on its own, as it seeks to overhaul the Medicaid program. And if it’s successful, it would usher in a new model for a program that covers some 75 million people.

How it works: Medicaid today is administered as a joint state-federal program, whose costs go up and down as enrollment and health care costs go up and down.

  • Tennessee wants the federal government to convert the state’s Medicaid funding into a simple block grant, giving the state far more flexibility over how to spend that money.

What they’re saying: Critics fear a block grant would ultimately lead to states kicking people off their rolls or pulling back services.

  • “We’re committing ourselves to not doing that,” Gabe Roberts, Tennessee’s Medicaid director, told reporters Wednesday.
  • He said the plan has been modified since it was first proposed to clarify that the state would use its new flexibilities — and, ideally, savings — to cover more people or additional services.

Details: Tennessee’s proposed block grant would be based on its existing Medicaid spending and would increase each year based on federal projections of health care costs.

  • State officials believe their program would be cheaper than the status quo, and they proposed splitting those savings 50/50 with the federal government.

What’s next: Gov. Bill Lee told reporters Wednesday that this will be a negotiation with federal officials, with whom the state had discussed its plans as recently as last week.

The bottom line: This would be a radical transformation of a major health care program, and it’s not at all clear that the Trump administration alone — rather than Congress — has the legal authority to revamp the Medicaid program so thoroughly.

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The federal government’s entitlement programs reflect a commitment to meet low-income people’s basic needs in a few essential areas, including health (through Medicaid), food (through SNAP, formerly known as food stamps), and support to people with disabilities (through Supplemental Security Income, or SSI). All people who meet the programs’ eligibility criteria can access these programs without delay.

Block-granting these programs would strip away the federal commitment to help vulnerable individuals and families who are eligible for these programs when they need them. Fixed annual funding would render the programs unable to automatically respond to increased need, as they do today. As need increases, states would have to cut eligibility or benefits or establish waiting lists to stay within capped funding.

Unlike Block Grants, Entitlement Program Funding Responds to Need

Consider an economic downturn that fuels a sudden increase in people who are entitled to an entitlement program’s benefits.

Funding for these programs responds automatically to the increased need. By assisting people when times are tough, entitlements also help stabilize the economy.  As the economy recovers, fewer people qualify for benefits. 

A block grant wouldn’t respond the same way to a faltering economy and greater need. Fixed funding levels would require states to absorb higher costs — or to cut eligibility or benefits. And the economy would lose an automatic stabilizer, which would worsen the downturn. That's because unlike with entitlements, block grants would not provide guaranteed resources to spend in local communities and, in turn, help keep people employed.

Michele Johnson, executive director of the Tennessee Justice Center, said state lawmakers have only worsened this problem by refusing to expand Medicaid — which would extend insurance coverage in rural areas — and by cutting existing state insurance programs. Unless the state changes course, Johnson said, there is little reason to believe that hospital closures will stop or even slow.

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