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

Every state but one spurned the Trump Administration’s invitation to convert its Medicaid program into a block grant. So, why did Tennessee grab the offer? The state’s checkered history suggests an answer.

After failing, as part of its effort to repeal the Affordable Care Act, to cap funding for Medicaid, the Trump Administration pursued the same goal by executive action. It did that by urging states to apply for a block grant that would cap the state’s Medicaid funding in return for relaxed state accountability and greater freedom to cut the program. Even the most ideologically ardent Republican states understood that it would put their Medicaid budgets in a bind and eventually force them to reduce care for the vulnerable populations that rely on Medicaid. The pandemic only reinforced the dangers of block grants to states’ budgets, and to their people. Although the Trump Administration made block grants the centerpiece of its Medicaid policy, it has had no takers.

Except one. Tennessee is aggressively pursuing a block grant, and Seema Verma, the outgoing head of the federal Centers for Medicare and Medicaid Services, recently made clear that her agency is receptive. In Tennessee’s application, state officials claim that they should no longer have to comply with federal fiscal safeguards and patient protections, because of “Tennessee’s history of innovation and prudent financial management.”

That history actually tells a very different story. Tennessee’s pursuit of a block is the latest chapter in long story of misusing federal funds intended for the benefit of vulnerable families and children.

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 is also telling. 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 accrued $772 million in unexpended reserves, by far the most in the nation. It 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 was projected to remove 68,000 parents from the TennCare program. When the TANF reserves came to light in late 2019, the governor and legislative leadership refused to spend the money.

State officials have remained unmoved even by the suffering inflicted by the pandemic. While the pandemic has plunged more children into poverty, the state has continued to hoard federal TANF funds, and its massive TANF reserve is now larger than ever. With schools no longer able to provide free or reduced price meals to their poor students, Congress sent the states pandemic electronic benefits transfer (P-EBT) funding to provide nutrition assistance to those children. Tennessee planned to return $50 million in food aid rather than distribute it to eligible children, relented in the face of a public outcry, but still plans to destroy thousands of P-EBT cards rather than mail them to the families to which they belong.

Tennessee has justified a block grant by suggesting it might be used for “rural health transformation.” Yet the state adamantly refuses to allow Tennessee’s rural communities 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 results from rural hospital closures. Tennessee’s refusal to expand Medicaid leaves rural hospitals at a six-fold higher risk of closing and deprives rural Tennesseans of urgently needed health resources. State leaders remain unmoved as rural communities struggle during the pandemic and their hospitals continue to close. The state’s invocation of rural health as a rationale for the block grant is ironic, and deeply cynical.

Tennessee is a state in which political cronyism too often leads to the misuse of public health funds, even funds that are urgently needed to fight a deadly pandemic. Approval of a Medicaid block grant opens frightening new opportunities for the state to squander federal health dollars, at substantial cost to taxpayers and to the vulnerable Tennessee children and adults who rely on Medicaid for essential medical care.