On September 17, 2019, the State of Tennessee, Division of Tenncare, released a draft version of Amendment 42 to its Section 1115 Demonstration Waiver, “Tenncare II Demonstration.” With the exception of pharmacy and certain waiver services, the vast majority of Tennessee’s Medicaid program services are funded under this Section 1115 Demonstration Waiver authority. Amendment 42 makes Tennessee the first state to take concrete steps to engage the Centers for Medicare and Medicaid Services in a proposed block grant funding methodology.

Changing the Medicaid funding formula to a block grant is not a new idea. Block grants were recently promoted unsuccessfully as part of efforts to repeal and replace the Patient Protection and Affordable Care Act. In 2017, the American Health Care Act bill was introduced to institute per capita spending caps for Medicaid enrollees under a block grant arrangement. Additionally, in 2017, the Better Care Reconciliation Act contained a section (Section 133) for the Medicaid Flexibility Program, which included per capita block grants.

The purpose of this paper is to discuss the risks and considerations of changing Medicaid’s funding formula to a general block grant structure.