TennCare unveils pilot to help families transition off Medicaid as federal rules threaten hospital payments

TennCare Director Steven Smith on Feb. 25 told the House Finance, Ways and Means Committee that TennCare will propose a four‑year pilot — called Pathway to Independence — that would provide time‑limited premium assistance to people who lose TennCare because their incomes rise.

"Our plan creates a 4 year pilot that will support families by providing parents who term from TennCare due to increased income with time limited capped private health insurance premium assistance," Smith said, describing the design as 12 months of assistance "up to $2,000 total limited to those who do not exceed 250% of the federal poverty level." Participants would pay $15 per month unless their premium is less.

Smith framed the pilot as part of a broader shared‑savings strategy under Tennessee's TennCare 3 waiver. He told the committee the state has secured "more than $1,300,000,000" in shared savings during the waiver's first four years and has reinvested those dollars in services, provider payments and new initiatives.

Committee members pressed TennCare officials about the practical effects of a pending federal rule (discussed in the hearing as HR 1/CMS guidance) that will require reductions in state‑directed payments to hospitals. Zane Seals, TennCare's chief financial officer, said Tennessee currently funds a very large directed payment to hospitals — roughly "almost $3,000,000,000" — and that CMS has signaled a 10% annual phase‑down beginning in 2028 until total payments align with 110% of Medicare. Seals and Smith said the precise methodology is not yet final and that CMS is expected to issue detailed guidance in 2026.

"It's very possible that the assessment will be reduced because that assessment ultimately results in the higher payments to the providers," Smith said, noting uncertainty about hospitals' individual responses and the long‑term financial picture.

Members raised rural access concerns, asking whether recent provider payment increases have reached smaller and rural practices. Smith said physician rates have seen average increases of about 3.5% over five years and that, across the last seven years, TennCare has added more than $5,000,000,000 in provider payments, including nearly $3,000,000,000 for hospitals and $700,000,000 for nursing homes. Dr. Victor Wu, TennCare's chief medical officer, said TennCare is tracking network adequacy and using new programs — including the Tennessee Community Compass and Health Starts initiatives — to measure whole‑person outcomes.

TennCare staff told lawmakers the state's Medicaid Management Information System (MMIS) procurement pivoted after federal guidance allowed more flexible approaches. Officials said the change likely pushes the MMIS completion date back by roughly three years but is expected to save "tens of millions of dollars" over time.

Smith emphasized the experimental nature of Pathway to Independence — "we don't know if this is going to work" — but said a successful pilot could reduce churn back onto TennCare, improve individual outcomes and generate long‑term savings.

The committee conducted extended questioning but no formal action or vote was taken on the pilot during the hearing. TennCare staff said the proposals and budget requests would be considered as part of the legislature's regular budget process.

What's next: TennCare will provide supporting budget detail to lawmakers; CMS rulemaking later in 2026 may change the fiscal math for directed payments and hospital assessment revenues, an issue members said they plan to monitor closely.