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FILE - In this July 9, 2019, file photo Tennessee Gov. Bill Lee speaks during a groundbreaking ceremony for the new soccer club stadium in East Ridge, Tenn. Lee says he doesn't feel compelled to witness an execution as Tennessee continues to put people to death. Lee, a Republican, was offered a witness seat after he declined to stop the past two executions since taking over Tennessee's top political office in January. Three more executions are scheduled to take place through early 2020. (C.B. Schmelter/Chattanooga Times Free Press via AP, File)

This story was updated Tuesday, Sept. 17, 2019, at 7 p.m. with more information.

NASHVILLE — Tennessee has became the first state in the nation to start the process of seeking a controversial federal Medicaid block grant waiver pushed by the Trump administration.

Republican Gov. Bill Lee on Tuesday asked to convert much of the federal share of costs in the state and federally funded TennCare health care program for the poor into what state modeling projects as a $7.9 billion annual lump sum.

The governor is also making a novel request to share future anticipated savings in TennCare on a 50/50 basis with the federal government. Lee says if the past is any guide and U.S. Health and Human Services officials agree, it could provide upwards of $1 billion for Tennessee.

Lee proposes to plow the money into health, including rural health initiatives, and also is not ruling out select expansion of TennCare to new population categories.

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Read Tennessee's proposed Medicaid waiver request

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THE PROPOSAL

Tennessee Gov. Bill Lee's $7.9 billion proposal would dramatically change both the funding and operation of the program which covers an estimated 1.4 million low-income children, mothers or other care takers, seniors and disabled persons on the program.

Under current federal law, eligible individuals have an "entitlement" to coverage. States are guaranteed federal matching dollars. There is no pre-set limit.

A pure Medicaid block grant program, which the Trump administration hopes will save federal dollars, could end the entitlement and set limits on federal matching of state expenditures, in exchange offering states more flexibility to reduce costs in various ways.

But what Lee is pursuing is somewhat different. His administration is calling it a "modified block grant."

It includes a "base" block grant amount which is set on applicable TennCare experience over Tennessee's three last fiscal years.

The dollars would then be "trended forward" annually by using inflation projections made by the Congressional Budget Office.

And growth in TennCare membership rolls would be accounted for through per capita increases in the block grant amount under the governor's plan.

Lee is also proposing a "shared savings" provision in which he expects the state to benefit as a result of cost-saving measures he wants to implement under the flexibility of the block grant.

The shared savings are the difference between what TennCare actually spends and what the federal Centers for Medicare and Medicaid Services projects would be spent if TennCare didn't exist and the state instead relied on a more expensive traditional fee-for-service Medicaid program.

Differences between actual TennCare expenditures and the higher costs without TennCare are called the "neutrality cap." And that is what Lee is proposing to split going forward with the federal government with the state getting half the savings while the federal government gets the remaining 50 percent. Tennessee could reap upwards of $1 billion annually through the split, according to the governor.

"We're excited about the prospects, and we think we have crafted a waiver that is going to really mitigate the risk that Tennesseans have [from a block grant] but actually give us an opportunity to benefit from the efficiencies that we have and from the way that we run our program," Lee said during a Monday roundtable with Tennessee reporters.

The governor, who was joined by TennCare Deputy Commissioner Gabe Roberts, said if the waiver is accepted by the Trump administration as the state envisions, "that benefit will give us an opportunity to provide enhanced services to our TennCare population at the very least and potentially, for the same money, provide additional services to more people.

"So this could be a big win for the state," Lee added.

(Read more: Lee vows to pursue Medicaid block grant but not accept one 'that would be bad for Tennessee')

TennCare now covers some 1.42 million low-income children, mothers, seniors and disabled Tennesseans at a total projected cost this year of $12.7 billion in state and federal dollars as well as other funding sources. In Hamilton County, 65,335 children, women and men were enrolled in July, according to TennCare's website.

According to the waiver, the block grant is projected to impact about 1.3 million people, based on a three-year monthly averaging calculation.

Tennessee's block grant waiver proposal includes core medical services and related expenditures for TennCare's four core population categories. These are: the blind and disabled; the elderly; children and adults, which includes pregnant women; and caretakers/relatives of minor children.

Excluded from the waiver are special federal payments to hospitals providing large amounts of otherwise uncompensated care, critical access and essential hospital payments and similar payments.

Also excluded are people who are enrolled in both Medicare and Medicaid; services that are now carved out of TennCare's current waiver, such as those for individuals with intellectual disabilities; children in state custody; outpatient prescription drugs and administrative expenses that are not treated as medical assistance expenditures.

(Read more: Tennessee lawmakers pass controversial TennCare block grant bill, adjourn for year)

Lee initiated the process Tuesday morning by providing notice of his plans for the managed care program. A 30-day public comment period is in place before the actual Medicaid Section 1115 waiver for TennCare can be submitted to federal officials.

The Republican-controlled General Assembly ordered Lee this year to seek the federal waiver. It came as health care advocates have continued to attack them for refusing to take advantage of the federal Affordable Care Act and extend coverage to an estimated 300,000 working adult men and women, as most states have done. The federal government under the ACA would pick up 90 percent of the cost, or about $1.4 billion annually.

For his waiver, Lee is proposing to plow the money into health care, including rural health initiatives. He is not ruling out expanding TennCare to new population categories.

Sen. Lamar Alexander said in a statement that he welcomes Lee's proposal to give Tennessee more flexibility in spending federal Medicaid dollars and that he will encourage federal officials to consider it seriously.

"Last Congress, I supported legislation in the United States Senate that would have taken Affordable Care Act money and turned it into block grants that states, including Tennessee, could decide how best to spend," said Alexander, who is chairman of the health committee in the U.S. Senate.

The state could make changes in response to questions and criticisms raised during the 30-day comment period. State officials would need to submit the waiver request to the U.S. Centers for Medicare and Medicaid Services by Nov. 20.

But Lee's proposals have already come under fire, even before he made the full details public.

"I think the issue is that when they say that they've created all these 'savings' for the federal government, that includes like the 220,000 children that were cut off even though tens of thousands of them were eligible," said Michele Johnson, executive director of the Tennessee Justice Center, in an early September interview.

HOW TO COMMENT

Interested in weighing in on Gov. Bill Lee's plan to seek a $7.9 billion block grant from the Trump administration for Tennessee's Medicaid program, operated here as TennCare?

As part of the process, the state is holding three public hearings in each of the state's three grand divisions in the cities of Knoxville, Nashville and Jackson. No hearings are scheduled for Chattanooga.

Members of the public can also submit comments in writing to TennCare.

The Lee administration must submit its proposal to the federal government by Nov. 20.

Sending comments:

* Mail comments to Gabe Roberts, Director, Division of TennCare, 310 Great Circle Road, Nashville, TN 37243

* Email comments to public.notice.tenncare@tn.gov

Public hearings:

East Tennessee

When: 2:30 p.m. EST on Oct. 2

Where: Burlington Branch of the Knox County Library, 4614 Asheville Highway in Knoxville

Middle Tennessee

When: 2 p.m. CDT on Oct. 1

Where: Family and Children's Service, 2400 Clifton Ave. in Nashville

West Tennessee

When: 2:30 p.m. CDT on Oct. 3

Where: Jackson-Madison County Library, 433 East Lafayette St. in Jackson

"Here's the bottom line," Johnson said. "The Trump administration has said they're going to cut over a trillion dollars out of the [national] Medicaid program through block grants. The Lee administration says we're going to be able to get all this money, an expansion of health care? The math doesn't work out."

Laura Berlind, executive director of the nonpartisan Sycamore Institute, a Tennessee-based think tank, likened Lee's proposed waiver to the "opening bid in negotiations with federal regulators over a TennCare block grant.

"The state would shoulder some additional long-term financial risk under this plan, but overall the proposed funding changes are weighted heavily in Tennessee's favor," she said in a statement. "The details of the federal funding ceiling as currently written are unlikely to pose a financial risk to Tennessee in the short-term."

Noting the proposal also gives TennCare officials "unprecedented control over changes to optional program benefits and provider payments," Berlind added: "This broad power shift from federal to state policymakers could have significant effects on TennCare spending, enrollees, and providers — either positive, negative, or mixed depending on if and how state officials use that power."

Last spring as the bill was pending before lawmakers, a dozen national patient groups, including the the American Cancer Society, American Heart Association and American Lung Association, asserted that the block grant directive would "jeopardize Medicaid enrollees' access to care."

But Americans for Prosperity Tennessee Director Tori Venable said the Lee administration's plan is "the innovative and bold proposal our state needs. This proposal looks to save outside the traditional scope of Medicaid, like telemedicine and transition services for returning citizens after incarceration.

"By investing in the health of Tennesseans, not just health insurance, we are finding the solutions to improve access to health care," she added.

The bill was sponsored by Sen. Paul Bailey, D-Sparta, and Rep. Timothy Hill, R-Bluff City.

Bailey issued a statement Tuesday saying the governor and his administration have "done an excellent job in moving forward with a bold and ambitious plan to improve healthcare in our state and to ensure that TennCare members continue to receive high-quality care into the future."

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow him on Twitter @AndySher1.

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