CMS approves first Medicaid block grant waiver in Tennessee

Tennessee is set to become the first state to implement a Medicaid block grant program after the Centers for Medicare and Medicaid Services approved the state’s waiver last week.

Using a modified block grant, called an “aggregate cap,” the TennCare III program creates a fixed spending target based on historical enrollment and Medicaid cost data that increases at a “reasonable growth rate” over time. The plan increases funding if there are unexpected increases in enrollment

The state will be given a range of operating flexibilities for this program, including the option to create a formulary of covered prescription drugs, the authority to negotiate directly with drug manufacturers, the ability to increase benefits and coverage without seeking prior approval from CMS, the power to respond to Medicaid fraud more aggressively and more.

Tennessee will also be given up to 55% of the savings generated each year when spending falls below the aggregate cap and the state meets quality targets. The funds can be spent on a variety of state health programs such as access to nutritious food, affordable and accessible housing, convenient and efficient transportation, safe neighborhoods, strong social connections, quality education and opportunities for meaningful employment.

CMS approved the program for 10 years to give the state time to fully evaluate its new approach to Medicaid.


Proponents of Medicaid block grants argue that by giving states more control over their programs, they will be able to create more efficient and innovative plans that produce better outcomes at a lower cost, according to a report from the Milbank Quarterly.

They also support the predetermined funding provided by block grants which allow federal policymakers to shift the responsibility of making benefit changes to states, the report suggests.

On the other side, numerous advocacy organizations, payers and providers oppose Medicaid block grants because they fear that by putting a cap on federal funds, vulnerable populations will lose access to healthcare.

For example, a group of 21 patient and consumer groups came out against CMS’s approval of TennCare III, saying it “is a reckless move that would reduce Tennesseans’ ability to get needed healthcare.”

The program’s fate has some uncertainty because the incoming Biden administration could attempt to do away with Medicaid block grants altogether. 


Last January, CMS issued guidance that gave states the ability to create aggregate or per-capita cap financing models for their Medicaid programs.

While some applauded the Healthy Adult Opportunity initiative for its innovative approach, it was largely met with pushback. Several advocacy agencies said that implementing a block grant system would make access to care more challenging, increase health disparities, worsen overall health outcomes and ultimately increase costs.

Following CMS’s January guidance, Oklahoma became the first state to apply for a demonstration waiver in April, but by August, the state had withdrawn its request.


“The TennCare III demonstration builds on all the good ideas that have been out there around a new financing model for Medicaid, but addresses many of the most prominent concerns,” said CMS Administrator Seema Verma. “This groundbreaking waiver puts guardrails in place to ensure appropriate oversight and protections for beneficiaries, while also creating incentives for states to manage costs while holding them accountable for improving access, quality and health outcomes. It’s no exaggeration to say that this carefully crafted demonstration could be a national model moving forward.”

“Our organizations have clearly and repeatedly voiced our deep concerns with Tennessee’s proposal, as well as our strong opposition to block grants in Medicaid in general,” a group of 21 patient and consumer groups said in a joint letter. “Per capita caps and block grants are designed to cap or limit the amount of federal funding provided to states, forcing them to either make up the difference with their own funds or make cuts to their programs reducing access to care for the patients we represent. Program cuts will likely result in enrollment limits, benefit reductions, reductions in provider payments or increased out-of-pocket cost-sharing for Medicaid enrollees. The approval specifically includes authority to limit prescription drug coverage, a dangerous proposal for patients.”

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