ATTENTION: This is a beta website, the final version will look significantly different. Thanks for bearing with us while HJM is under construction! Posts can now be found here.

Here they come – block grants for Medicaid

January 30, 2020

Topics: Quote of the Day

CMS.gov, January 30, 2020

The Centers for Medicare & Medicaid Services (CMS) is announcing a new opportunity to support states with greater flexibility to improve the health of their Medicaid populations. The Healthy Adult Opportunity (HAO) emphasizes the concept of value-based care while granting states with extensive flexibility to administer and design their programs within a defined budget.

Financing and Program Integrity

States participating in HAO demonstrations will need to agree to operate their program within a defined budget target, set on either a total expenses or per-enrollee basis, in a manner similar to that used in other section 1115 demonstrations. Total expenditures for covered populations in excess of the annual budget will not be eligible for Federal Financial Participation. The targets will be negotiated based on the state’s own historic costs and other factors like national and regional trends. The financial parameters will be tied to inflation and adjustments may be made for extraordinary events. CMS will closely work with states to set a realistic baseline.

Under the total expenses model, CMS will calculate a base year amount using prior year expenditures based on the populations and benefits included in the state’s demonstration. CMS will trend this amount forward to each demonstration year without regard to changes in Medicaid enrollment. While available funding will be capped in the aggregate, states will not have the ability to cap enrollment and still receive the enhanced federal match rate available to the expansion population. States agreeing to the total expense model will be required to maintain spending on health services at a level at least 80% of the target amount. To the extent they achieve savings and demonstrate no declines in access or quality, CMS will share back a portion of the federal savings for reinvestment into Medicaid. The amount of shared savings available for reinvestment would increase based on commensurate improvements in quality and access measures.

Under the per enrollee model, CMS will determine a per enrollee base amount for each eligibility group included in the demonstration using prior year expenditures. If prior year expenditures for the covered population are unavailable, the base year amount will be determined initially considering national/regional expenditures and other relevant information, and will be subject to rebasing to ensure accuracy. CMS will trend each group’s base amount forward to the demonstration year and then multiply the trended base amount by the number of enrollees for that year. The amount for each group will be added together to create an overall per capita cap. Therefore, the per-enrollee budget amount will fluctuate based on enrollment, while the aggregate cap budget amount will not.

Under both models, states will be required to participate in program integrity and financial oversight activities to ensure they continue to make accurate eligibility determinations and receive appropriate federal funds for covered populations. While total federal funding will be capped, the HAO does not change the need for states to submit claims reflecting actual expenditures to obtain federal matching funds for the Medicaid program. States will also be required to provide quarterly and annual expenditure reports to demonstrate their financial performance relative to their budget agreement.

Flexibilities Available Under the Healthy Adult Opportunity

The HAO will involve the use of section 1115(a)(2) authority to provide coverage to adults not eligible for benefits under the state’s Medicaid state plan, while affording states significant flexibility in the administration of benefits for such individuals. For the first time, CMS is offering flexibilities currently available to states in a comprehensive suite of pre-packaged waiver authorities. This will give states, if they choose it, the opportunity to propose commonly requested authority for participating populations, including the ability to:

  • Adjust cost-sharing requirements to incentivize high value care,
  • Align benefits more closely to what is available through a commercial insurance benefit package,
  • Improve negotiating power to lower drug costs by adopting a closed formulary similar to those provided in the commercial market (see section below for more detail),
  • Make timely programmatic adjustments without additional federal approval,
  • Apply additional conditions of eligibility which support the objectives of the program,
  • Deliver care through innovative delivery systems, and
  • Waiving retroactive coverage and hospital presumptive eligibility requirements.

Managed Care and Delivery Systems

CMS encourages states applying for this demonstration to implement evidence-based payment and delivery system reforms in order to achieve compliance with the quality and cost goals. In general, states will be able to use any combination of fee-for-service and managed care delivery systems and will have flexibility to alter these arrangements over the course of the demonstration, as long as certain guidelines are met.


CMS Press Release:

CMS letter to State Medicaid Directors (56 pages):


By Don McCanne, M.D.

Conservatives for decades have been trying to change Medicaid funding to block grants – a scheme to progressively reduce federal contributions to the state Medicaid programs. Opponents to block grants have pointed out that the program is already critically underfunded, and further reductions will likely cause states to further reduce coverage for those with the least means to pay for their own care.

Today CMS is introducing the Healthy Adult Opportunity program – a program for adults in poverty who are not otherwise eligible for the state Medicaid programs. CMS has bypassed both Congress and the courts in order to to establish this block grant program, though they do not use that label. But, as the fact sheet explains, “funding will be capped in the aggregate” – a nice way of saying “block grant.”

Since the poor have a very weak political voice, programs for them do tend to be underfunded. By establishing a separate health care program for the poor – Medicaid – chronic underfunding is expected. But that affects not only the poor themselves by impairing access, but it also underfunds those in the health care delivery system who are trying to meet the health care needs of these less fortunate individuals. However, separate funding for health care for the poor is unnecessary. Other nations with universal systems based on social solidarity have no difficulty with the concept of providing equitable care to everyone, regardless of income or wealth.

Rather than having a two-tiered or multi-tiered system, we can ensure that everyone receives optimal care by enacting and implementing a single payer model of an improved Medicare for All. The sooner, the better. In fact, maybe the conservatives could accept the concept of block grants in the form of single payer global budgets, as long as everyone is adequately covered.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

See All Posts

You might also be interested in...

© Health Justice Monitor
Facebook Twitter