First Look: Detailed Analysis on New CMS Block Grant Proposal

ANCOR attended the Center for Medicare and Medicaid Service’s (CMS) event Thursday announcing a letter to state Medicaid directors, which details a newly-created, optional demonstration waiver to block grant Medicaid for working-age, able-bodied adults (see fact sheet here). While the waiver, named the Healthy Adults Opportunity, would predominantly focus on the Medicaid expansion population, Medicaid Director Calder Lynch indicated on a stakeholder call that parents / caretakers whose incomes exceed the Medicaid income threshold could be included. ANCOR is currently going through all the materials CMS released on the proposal, but here is our preliminary read on the issue.

Bird’s eye view of the new waiver:

What the waiver does: The plan is based on 1115 (a) (2) waivers – no one who is eligible through the disability pathway can be included, however. States opting for the waiver must renounce the enhanced FMAP bump which comes from the Medicaid expansion waiver. In this demonstration program, states will be able to:

• Use a streamlined process to apply for or make changes to the waiver.
• Pick between a per capita cap model or an annual spending block grant for the waiver population. States picking the block grant option may share between 25-50 percent of the savings with the federal government. Revenue-sharing is not available to the per-capita cap option.
• Explore cost-sharing models, as long as cost-sharing does not exceed the 5 percent cap that currently exists in Medicaid.
• Receive greater flexibility on social determinants of health such as housing supports, but that does not include room and board.
• Apply for alternative services such as dental care. States can only take away alternative benefits midway through a demonstration if they mentioned that possibility in their application, otherwise the state would have to fund it.
• Align coverage with essential health benefits benchmarks in their or other states.
• Negotiate drug prices similarly to private insurance companies without losing federal drug rebates.
• Cover FQHC services “as part of a value-based strategy”.
• Determine the delivery and payment models used, e.g. managed care, fee for service, or “innovative payment models” such as premium assistance.
• Apply work requirements.

Constraints states face within the waiver:

• Quarterly reporting on usage / performance metrics.
• Plans must be cost-neutral and states are responsible for an overspend. If a state overspends their plan, they will be required to submit “corrective action plan” to CMS. CMS will work extensively with states to determine their base, looking at historical spend, population projections, etc.
• States may re-base their spending plan every 5 years, although “exit” strategies are in place – we do not have details on that component yet.

Existing federal protections in effect: CMS stated this will not lead to a change in coverage for “Medicaid’s most vulnerable populations”. Additionally, existing federal civil rights, disability, and tribal protections remain in place.

Essential health benefits remain: The waiver would still have to provide essential health benefits (EHBs), as well as retain the current 5 percent cap on cost-sharing in Medicaid.

Public notice and comment processes remain at the state level: While CMS will streamline the process for states to apply for the waiver and make changes to the waiver, states will have to offer public notice and opportunities for comment on the application itself. CMS encouraged stakeholders to have a seat at the table when applications are posted.

Preliminary concerns:

• The messaging the Administration is using depicts the Medicaid expansion population as weakening Medicaid overall, and taking resources away from people with disabilities. In her remarks at the announcement event, CMS Administrator Seema Verma explicitly cited waiting lists for disability supports as an example of resources being removed.
• People with disabilities who have become eligible for Medicaid through other pathways could be swept up in this proposal if they are not eligible for a state plan.
• ANCOR needs to do more research regarding the effect of this provision on parents / caregivers whose incomes exceed the Medicaid income threshold.

Other stakeholders’ initial reactions:

• Politico Pro reported that the states of Oklahoma and Alaska have expressed interest in the proposal. ANCOR heard Governor Stitt of Oklahoma announced his intent to apply at the launch event. Separately, we heard that the state of Georgia is also interested.
• Congressional Democrats are protesting, including with a vote to condemn the proposal scheduled for Thursday. See our ANCOR Capitol Correspondence article on this topic.
• Politico has reported that “officials are still bracing for the new block-grant plan to be tied up in litigation, perhaps for the remainder of the president’s current term.” Potential legal challenges could include whether CMS has the authority to change Medicaid’s funding structure to block grants or per capita caps, and given the explicit allowance of work requirements, the legality of work requirements.
• Pharmaceutical companies are expected to push back on provisions allowing states to exclude certain prescription drugs while retaining federal rebates.
• Health groups who are formally opposing the proposal include: American Association for Health and Disabilities, Center for Budget and Policy Priorities, Community Catalyst, FamiliesUSA, and National Health Law Program.