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CMS Outlines Medicaid Block Grant Option for States

The Centers for Medicare & Medicaid Services issued Jan. 30 letter to state Medicaid directors outlining a new initiative allowing states to implement an optional block grant or per-capita cap to finance Medicaid.

Through this Medicaid Section 1115 demonstration waiver, entitled Healthy Adult Opportunity (HAO),  states could provide coverage for optional Medicaid populations using these alternative financing mechanisms in exchange for increased administrative flexibility. The letter was accompanied by an application template, press release, HAO fact sheet, and Medicaid “Facts and Figures” fact sheet.

The HAO initiative is focused on optional patient populations, such as the Affordable Care Act (ACA) expansion population. CMS’ letter makes clear that states cannot pursue this approach for their entire Medicaid population and must fully expand Medicaid to receive the ACA’s enhanced federal matching rate for the adult expansion population.

States still will have to cover the essential health benefits, as outlined by the ACA, for patients covered under an HAO waiver. However, states can use the waiver to provide coverage of nontraditional services that address social determinants of health. For example, while Medicaid dollars cannot be used to pay for “room and board,” states can use funds under an HAO waiver to cover services such as enhanced care management that links patients to housing.

Under an HAO waiver, states can opt for either a block grant (or an aggregate cap) or a per-capita cap financing arrangement. Expenditures over the cap would not be eligible for federal matching funds. CMS will exclude tribal and administrative expenditures, Medicaid disproportionate share hospital (DSH) payments, non-DSH supplemental payments, managed care pass-through payments, and waiver-based payments (such as uncompensated care pools) from the aggregate and per-capita cap calculations.

We are analyzing the HAO announcement and will send a detailed Action Update in the coming days.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Zina Gontscharow is a former senior policy analyst for America's Essential Hospitals.

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