When millions of Americans lost their jobs and their health insurance in the Great Recession, Medicaid opened its arms, adding 6.7 million members from December 2008 to December 2010.
Medicaid’s open-ended federal funding helped pay for that 15 percent growth, ensuring coverage for all eligible applicants.
But under proposals from congressional Republicans, Medicaid beneficiaries would no longer automatically get that federal funding when enrollment spikes.
If approved by Congress, “block grants” would give states a fixed amount of federal dollars each year to run Medicaid, the state- and federally funded health plan for poor people and those with disabilities.
House Speaker Paul Ryan, R-Wis., and Rep. Tom Price, R-Ga., President Donald Trump’s nominee for health and human services secretary, have backed block grants for Medicaid. The Trump administration has signaled its support as well. Nevertheless, prospects in Congress, which will be considering a variety of health care coverage ideas, are uncertain.
Currently, the federal government pays a share of each state’s Medicaid spending – anywhere from 50 to 80 percent – with no limit on total costs.
Some say that generous funding formula doesn’t give states much incentive to look for cost efficiencies.
As a result, conservatives complain that “this is a program that doesn’t encourage states to try to figure out how to do what they’re doing in the most prudent way,” said Gail Wilensky, a senior fellow at Project HOPE who ran the Medicaid program from 1990 to 1992 under President George H.W. Bush.
“It’s very different if you know you’re going to get a certain block of money and that’s all you’re getting. And if you spend more, then you have to come up with your own state money,” she said.
Republicans have touted block grants for decades as a cost-saving solution that not only saves money but also gives states more flexibility to redesign their Medicaid programs with limited federal interference.
But the drastic change would mean dramatic changes in Medicaid. It would no longer guarantee coverage for all who qualify, and program eligibility and coverage rules would have be restructured.
When Ryan offered a similar plan in 2011, the nonpartisan Congressional Budget Office found it would cut federal Medicaid spending by 35 percent from 2013 to 2022. To make up for the lost funding, states would have had to consider raising taxes, cutting spending in other programs or cutting benefits and limiting enrollment in Medicaid, the CBO found.
Block grants would also leave Medicaid programs with no financial flexibility to handle emergencies like an unexpected increase in higher-cost medical services or enrollment spikes during economic downturns – like the Great Recession.
“All of the major block-grant proposals that we’ve seen in the last few years involved huge cuts to the Medicaid program. Cuts that would render it a shadow of its former self,” said Joan Alker, executive director of the Center for Children and Families at Georgetown University.
Congressional Republicans feel the potential funding loss is worth the flexibility to reshape the program’s benefit structure and enrollment policies.
In exchange for federal funding, Medicaid requires states to cover low-income children, families, pregnant women and parents along with most seniors and people with disabilities who receive Supplemental Security Income, a federal income supplement for the aged, blind people and those with disabilities.
Republicans say these and other coverage mandates restrict states’ ability to tailor the program to their residents. They want more flexibility to innovate.
Alker said the call for more flexibility was overblown.
“When proponents of block grants talk about ‘more flexibility,’ they’re talking about eliminating federal benefit standards, federal cost-sharing protections and other requirements” that come with receipt of federal money, Alker said.
In addition, states already have the flexibility to redesign their programs through special waivers of certain Medicaid rules, said Colleen Grogan, professor of health policy and politics at the University of Chicago.
“So do we really need a block grant to give states flexibility? No. We don’t,” Grogan said. “The block grant is really about controlling the financing and, because it’s a fixed amount, then controlling enrollment in Medicaid.”
But gaining federal approval to redesign state Medicaid programs can take months, said Wilensky.
“And for the last couple of decades, that has been a cause of frustration on the part of the states. That there is this flexibility, but it doesn’t come easily,” Wilensky said.
Because block grants don’t adjust for unexpected Medicaid enrollment increases and would cause a political brawl over how much states should receive, Wilensky supports federal funding for Medicaid through a “per capita cap” that provides funds for each beneficiary up to a specified amount. Like block grants, the legislative fate of per capita caps is uncertain.
Per capita caps, unlike block grants, would adjust for Medicaid enrollment increases, but not for unexpected cost increases.
Under Ryan’s “A Better Way” proposal, states that opt for Medicaid funding through federal per capita caps – rather than block grants – would apply different funding thresholds for the four major program enrollees: children, adults, the elderly and people with disabilities.
“The fundamental difference between a ‘per capita cap’ and a state block grant is that per capita caps accept the basic reality that the cost of care for an 80-year old disabled senior is way more expensive than the cost of care for a healthy 12-year-old child in poverty,” said Jeff Myers, president and CEO of Medicaid Health Plans of America.
Myers said he thought it was “highly unlikely” that Medicaid would be block-granted. Any change in the program’s funding structure will likely involve either a change in the federal matching rate or through per capita caps, he said.