Tennessee’s Misuse of Federal Funds Makes It A Poor Candidate for a Medicaid Block Grant

On November 20, 2019, Tennessee submitted to the federal Centers for Medicare and Medicaid Services (CMS) a request for a federal waiver that would convert the state’s Medicaid managed care program, known as TennCare, into the nation’s first Medicaid block grant. The submission, which was mandated by the state legislature, “is predicated on the simple idea that in general, the state is in a better position than the federal government to direct TennCare spending in order to most effectively promote the health of the TennCare population.” Touting what it calls “Tennessee’s history of innovation and prudent financial management”, the proposed waiver would give the state unprecedented powers “to spend block grant dollars on items and services not otherwise covered under TennCare, or not otherwise eligible for federal match, if the state determines that such expenditures will benefit the health of members or are likely to result in improved health outcomes.”

Tennessee says that it “may elect to use block grant funds on public health initiatives that are not specifically targeted at the TennCare population but which can reasonably be expected to result in health benefits for the TennCare population (e.g., supporting provider transformation efforts in rural or underserved areas…).” The state disavows any intention of using funds on projects such as highway maintenance but does not rule out expenditures on such items as education or law enforcement.

No other state has been entrusted with such broad authority to spend federal funds for purposes not authorized by Congress. Does Tennessee’s claimed “history of prudent financial management” support such unprecedented delegation of authority to the state? The answer is “no.” Indeed, Tennessee’s poor stewardship of federal funds makes it uniquely unworthy of such trust.

In the depths of the Great Recession, for example, Tennessee diverted hundreds of millions of federal Medicaid dollars that were intended to benefit low-income patients, their providers and the communities in which they lived. The American Recovery and Reinvestment Act of 2009 (ARRA), P.L. 111-5, increased federal Medicaid funding by raising the percentage of program costs borne by the federal government, known as the Federal Medical Assistance Percentage, or FMAP. Because the funds were meant to immediately benefit depressed communities and affected households, Section 5001(f)(3) provided that, “A State is not eligible for an increase in its FMAP … if any amounts attributable (directly or indirectly) to such increase are deposited or credited into any reserve or rainy day fund of the State.” Yet Tennessee did just that. It deposited the entire ARRA Medicaid increase in the state reserve fund, thereby diverting it to purposes completely unrelated to Medicaid. At the same time, the state extended hundreds of millions in incentives to Volkswagen to expand its assembly plant in Chattanooga.

Tennessee’s stewardship of other federal block grant funding also raises concern. Tennessee, like all states, receives an annual block grant to provide Temporary Assistance to Needy Families (TANF). The purpose of TANF funds is to assist families with children living in poverty. Tennessee is ranked among the states with the highest rates of children living in extreme poverty. Instead of making full use of TANF funds for their intended purpose as other states have done, Tennessee has hoarded its TANF allotment. Tennessee has accrued $772 million in unexpended reserves, by far the most in the nation. It has simultaneously refused to release other federal block grant funds to subsidize child care for low-income working families. Instead of using TANF reserves to relieve childhood poverty, the state adopted a law in 2018 that diverts part of the reserves to fund a Medicaid work requirement that is projected to remove 68,000 parents from the TennCare program. When the TANF reserves recently came to light, the governor and legislative leadership refused to spend the money, relenting only in the face of a public backlash.

The TennCare waiver proposal’s suggestion that block grant funds might be used for “rural health transformation” is ironic. The same legislature that mandated submission of the block grant proposal has adamantly refused to allow Tennessee’s rural communities and uninsured families to benefit from an estimated $1.4 billion annually in federal Medicaid expansion funds authorized by the Affordable Care Act, even though their use would cost the state nothing. Tennessee has the nation’s highest rate per capita of rural hospital closures, and rejection of the expansion funds is especially damaging, because Medicaid is the principal source of health coverage in rural communities. Entire areas of the state have suffered the economic devastation, as well as loss of health care access, that result from rural hospital closures. Yet Tennessee remains in the dwindling minority of states that have spurned the Medicaid expansion funds, leaving rural hospitals at a six-fold higher risk of closing, compared to states that have made use of the funds, and depriving the rural communities they serve of urgently needed health resources. This record discredits the waiver proposal’s invocation of rural health as a reason to give Tennessee state officials unprecedented authority to spend federal Medicaid funds as they please.