Policymakers searching for ways to improve Missouri’s Medicaid program should look no further than Tennessee. A new proposal from the Volunteer State would reform the way the federal government pays for Medicaid services in Tennessee. Instead of the open-ended funding relationship currently used across the country, Tennessee has requested the federal government begin offering Medicaid dollars as a lump sum payment, or block grant. Though there are many details yet to be ironed out, the plan represents a promising approach for states to begin reining in Medicaid’s ever-growing costs.
If approved by the federal government, Tennessee’s proposal would be the first of its kind. Medicaid’s current funding relationship between states and the federal government is riddled with “misaligned financial incentives”. Medicaid currently uses a matching dollar structure. For every dollar Missouri spends on an approved service, the federal government will spend nearly two. Because there is no limit to the amount of federal Medicaid dollars Missouri can receive, the arrangement encourages further state spending which grows the overall cost of the program. This structure also discourages states from finding innovative ways to provide better care at a lower cost. Under Tennessee’s plan, the state would actually get to keep 50% of the money it saves as a result of more efficiently administering the program.
Block grants also provide the opportunity for states to improve quality of care. Once the anticipated program savings are achieved, the dollars saved could be invested back into the program for initiatives chosen by each state depending on individual state needs. And as Tennessee’s governor noted, there won’t be a change to eligibility requirements or a reduction in benefits under the block grant proposal. Advocates of the Tennessee proposal believe that by properly aligning Medicaid’s funding incentives and increasing local control of the program, up to a billion dollars per year could be saved.
Medicaid block grants are not a new idea; Show-Me Institute analysts have promoted block grants for years. But this idea remains as important as ever. It is not a coincidence that the cost of Medicaid has continued to rise each year since 2014 when the federal government expanded its role in the state/federal partnership. Missouri’s policymakers should pay attention to what happens in Tennessee, because a similar proposal may be the best way to fix Missouri’s Medicaid program.