Tennessee has a plan to revolutionize health care for its low-income residents. The Volunteer State is petitioning the federal government to fund its Medicaid program, TennCare, with an annual lump-sum payment.
The Medicaid funding status quo, wherein the federal government matches every dollar a state spends on the program, encourages reckless spending and ensnares states in red tape. Despite all that spending, the program fails to provide beneficiaries with quality coverage.
Tennessee’s proposed block grant, by contrast, would empower state officials to cut costs and experiment with new ways to care for Medicaid beneficiaries. It could serve as a model for the rest of the country.
Under Medicaid’s current funding structure, the more a state spends on the program, the more it receives from the federal government. This has led to extraordinary spending at both the state and federal levels.
State Medicaid spending grew in fiscal year 2019 even though enrollment fell. In fiscal year 2017, more than one-quarter of every dollar states spent went toward Medicaid.
Nationally, Medicaid is projected to cost over $400 billion in fiscal year 2019. Much of this spending is unnecessary. Medicaid wasted $36.7 billion on improper payments in fiscal year 2017 alone.
All that spending doesn’t buy beneficiaries quality coverage. A two-year study from Oregon found that patients enrolled in Medicaid had “no significant improvements” in health outcomes compared to a similar group of uninsured patients.
Fortunately, Tennessee’s new approach could set Medicaid back on track. Under the block grant model, Tennessee would receive a single payment each year. For the first year, the block grant would be nearly $8 billion — an amount in line with the state’s projected Medicaid costs. If the TennCare population grew, that lump sum would increase.
Block grants can correct the two biggest problems with Medicaid. They’d encourage states to spend money judiciously. And they’d would give state officials the flexibility to design benefits packages that meet the unique needs of low-income residents in their state.
For example, Tennessee plans to use its block grant to invest in public health, impose proper penalties for Medicaid fraud, and improve rural care. Tennessee would also have the flexibility to use any residual money from the block grant to fund efforts that will improve beneficiaries’ health.
There’s evidence that states are better equipped than the federal government to meet the healthcare needs of their residents. Just look at Indiana. Since 2008, the state has enrolled certain low-income residents in its “Healthy Indiana Plan.” HIP pairs a high-deductible health plan with a tax-advantaged health savings account, which enrollees can use to pay for health services before they hit their deductible.
Unlike traditional Medicaid, HIP is designed to empower beneficiaries and contain costs. Those who contribute money to their savings account — even just a few dollars a month — are eligible for expanded benefits, like dental and vision care. This provision is designed to encourage good saving habits and give beneficiaries a greater stake in their own health.
HIP also encourages preventive care, which beneficiaries can access at no cost. That can help avert costly hospitalizations and treatments down the road — and thus save the state money. Those who meet certain preventive care requirements can roll over the funds in their savings account to the next year.
Eighty percent of beneficiaries say they’re satisfied with HIP. Over 90 percent said they would re-enroll if they ever left but became eligible again.
A block grant system could deliver similar levels of satisfaction to Tennessee’s Medicaid beneficiaries — and set an example for the rest of the country.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is The False Promise of Single-Payer Health Care (Encounter). Follow her on Twitter @sallypipes.