By Kinika Young, Tennessee Justice Center

On its way out, the Trump Administration granted a waiver to Tennessee that radically changes its Medicaid program (“TennCare”). In exchange for capped funding, the state received flexibilities to attempt to underspend the cap and keep a portion of the savings. As noted by over a dozen prominent national patient advocacy groups, the modified block grant waiver, known as “TennCare III,” threatens access to care for the 1.4 million Tennesseans who rely on the program, and it should concern every provider in the state that participates in this multi-billion-dollar program.

TennCare has operated under a Section 1115 waiver since 1994. The initial waiver was pioneering in that it allowed the state to test whether it could better promote the Medicaid program’s purpose to meet the health and long-term care needs of low-income people using a managed care model. TennCare III will still rely on managed care organizations (MCOs) to administer the program, but it introduces a new risky venture. It places an aggregate cap (that can be adjusted if the TennCare population increases or decreases by 1% or more) on the federal dollars that Tennessee will receive to provide care for TennCare enrollees over the next 10 years — an arrangement that has never been done in any state in the history of the Medicaid program.

This is a significant departure from the open-ended funding structure of the federal-state partnership, in which the federal government pays more than $2 for every $1 the state spends to cover the costs of the program. TennCare is considered a modified block grant because rather than paying a lump sum, the federal government will continue providing matching funds (the current rate is 72.3% due to the ongoing public health emergency) but only up to the amount of the aggregate cap. The aggregate cap is currently set at a generous level, but the danger lies ahead as the cap will reset in five years to a yet-to-be-determined level, creating significant financial risk to the state in future years.

What should concern patients and providers today is the tactics the state can employ in order to underspend the aggregate cap and generate savings. One key “flexibility” the state was granted is to create a closed drug formulary, whereby TennCare can limit prescription drug coverage. There is an exception process to request coverage of drugs that are not on the closed formulary, but anyone who has had to appeal a coverage decision knows how daunting the process can be. For people with special healthcare needs, limiting coverage of prescription drugs will create additional barriers and potentially lengthy delays to access the drugs they need.   

Another area of concern is that although the state has promised not to cut enrollees or benefits (aside from the closed drug formulary, which is a benefit reduction), cuts can be achieved in other ways – TennCare could lower provider payment rates, and it could make it more difficult for eligible Tennesseans to enroll in TennCare or maintain their coverage.

This waiver allows for the reduction of reimbursement rates to providers who contract with MCOs to participate in their plans’ networks, without federal oversight. TennCare’s low rates and paperwork requirements already discourage many providers from participating in the program. Further rate reductions would generate savings for the state, at the price of shrinking provider participation and reducing TennCare enrollees’ access to healthcare, which effectively is a cut to services. 

This is not a far-fetched idea as TennCare has previously erected administrative barriers for enrollment, redetermination and authorization of services. TennCare could ratchet up the red tape, which caused thousands of children and adults to lose their health insurance without notice in recent years.

What is perhaps most concerning about TennCare III is that there is no guarantee that changes will be made to improve quality or access to care. There are no promises to cover any additional people, to eliminate wait lists for individuals with disabilities, to stem the closure of rural hospitals, or to address any of the other urgent healthcare issues in our state. It is unknown whether TennCare will see any “savings” since it is contingent on meeting 10 quality metrics that have yet to be defined.   

The waiver is at risk of a legal challenge. Any waiver approval that exceeds the authority of the HHS Secretary and/or does not further the objectives of the Medicaid program can be challenged under federal law. Many legal experts have raised procedural and substantive problems, including that CMS failed to follow its regulations regarding transparency and the waiver approval process; the financial provisions exceed section 1115 waiver authority; the 10-year period violates the law that only permits a three-year extension; and the closed drug formulary contradicts specific provisions of the Medicaid Act.

Aside from its precarious legal position, the waiver is also vulnerable to the change in politics as the Biden Administration could withdraw the approval that was granted by the Trump Administration. CMS is authorized to withdraw an approved waiver at any time if it determines the waiver does not further the program objectives of Medicaid. President Biden’s January 28th executive order, which directed federal agencies to review agency actions concerning healthcare (including “demonstrations and waivers…that may reduce coverage under or otherwise undermine Medicaid…”), signals that TennCare III might be on the chopping block.  

If the TennCare III waiver is rescinded, the program will once again be subject to the terms of the waiver that was previously in effect, known as TennCare II. TennCare II is due to expire June 30, 2021. The state would need to submit a new application to extend the waiver. If there is insufficient time for the submission and approval of such an application, CMS could extend TennCare II for a short period (e.g., six months) to accommodate the application and review process.

TennCare III is a gamble that introduces significant risk for a chance at a speculative reward. At a time when our state is facing a public health crisis, serious economic downturn, rising numbers of uninsured people and hospital closures, it would be wiser to go with a sure bet and accept billions of dollars to expand coverage to more people under the Affordable Care Act.


Kinika Young is senior director of Health Policy and Advocacy for the Tennessee Justice Center. A lawyer and health policy advocate, she joined TJC in 2017. For more information on this article, the potential impact on patients or for more information on the work of the Tennessee Justice Center, please go online to tnjustice.org or reach out to Kinika at kyoung@tnjustice.org.