Feds rescind effort to lock in Medicaid changes made by Trump administration

Gov. Bill Lee speaks to reporters following his address to a joint convention of the General Assembly on Jan. 19, 2021. (Erik Schelzig, Tennessee Journal)

A little over two weeks before President Donald Trump left office, the Republican administration sent out a letter to states like Tennessee to declare it was locking in any approved changes to Medicaid programs for a period of at least nine months. Democratic President Joe Biden is now rescinding that guidance, meaning that previously approved demonstration projects or waivers could be withdrawn at any time.

The most immediate effect of the move could be a cancellation of work requirements for Medicaid recipients that had been approved in several states. But Tennessee’s first-in-the-nation block grant could also be on the chopping block.

“We’re the first state in America that just got a federal waiver for Medicaid that allows us to share savings with the federal government,” Gov. Bill Lee told the Nashville Area Chamber of Commerce on Tuesday. “There’s a lot of partisan squabbling about that, but that was a business deal that was negotiated over a year-and-a-half that will allow Tennessee to have more money to spend on its Medicaid population than it would have underer a traditional Medicaid agreement.”

Read the full letter from the Centers for Medicare and Medicaid Services to TennCare Director Stephen Smith below.

Dear Mr. Smith:

On January 4, 2021, the Centers for Medicare & Medicaid Services (CMS) issued a letter to individual State Medicaid Directors that concerned procedural issues for states that operate a section 1115 demonstration. Specifically, an attachment to the January 4, 2021 letter proposed to delineate certain additional procedures for a preliminary hearing process, yet to be developed by CMS, that would be implemented in the event that CMS determines that it will either suspend or terminate a demonstration, in whole or in part, for material non-compliance with the terms of the demonstration project or based on a finding that the demonstration project is not likely to achieve the statutory purposes (see 42 C.F.R. § 431.420(d)(1)–(2)).

Consistent with federal regulations, the approved special terms and conditions (STCs) governing each demonstration project under section 1115 of the Social Security Act (Act) already generally specify procedures that CMS would use, in the event it suspends or terminates a demonstration project, in whole or in part, for material non-compliance or based on a finding that the demonstration project is not likely to achieve statutory purposes. As the attachment to the January 4, 2021 letter noted, the terms and conditions of the demonstrations at issue typically provide that “CMS will promptly notify the State in writing of the determination and the reasons for the amendment and withdrawal, together with the effective date, and afford the State an opportunity to request a hearing to challenge CMS’ determination prior to the effective date.” See 42 C.F.R. § 431.420(d)(3) (providing that “[t]he terms and conditions for [a] demonstration will detail any notice and appeal rights for the State for a termination, suspension, or withdrawal of waivers or expenditure authorities”).

By proposing to delineate additional procedures for the withdrawal or suspension of a demonstration approval—particularly by purporting to require that the effective date of such a withdrawal or suspension be at least nine months after CMS transmits its withdrawal determination to a State—the January 4, 2021 letter did not address CMS’s need for flexibility to make and effectuate determinations under 42 C.F.R. 431.420(d)(1)-(2). The current COVID-19 pandemic and economic environment, along with an ongoing need for general CMS oversight of section 1115 demonstrations, necessitate that CMS maintain the regulatory flexibility to respond appropriately to current or changed circumstances by adjusting, suspending, or terminating an existing demonstration and associated authorities in whole or in part.

CMS needs to remain able to exercise its authority under the Act and implementing regulations to maintain continued oversight of demonstrations in order to ensure that they remain likely to achieve the statutory purposes. (see 42 U.S.C. 1315(d)(2)(E); 42 C.F.R. 431.420(d)(2)) Therefore, CMS is rescinding the January 4, 2021 letters, along with the specific provisions in the attachments to those letters, including those signed by states, and will not accept signed attachments from states based on those letters. Instead, CMS will adhere to the regulations and STCs, which generally provide that States will receive notice and an opportunity to request a hearing before a determination to suspend, modify, or withdraw a demonstration project becomes effective.

CMS remains committed to the state and federal partnership centered on meeting the diverse healthcare needs of the millions of beneficiaries served by Medicaid. States should continue to look to the approved STCs that govern their section 1115 demonstrations and reach out to their section 1115 demonstration project officer with any questions.


Elizabeth Richter

Acting Administrator

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