The Case Against Medicaid Block Grants

With their one-time Recovery Act funds about to expire, budget conscious governors from around the nation are petitioning the Department of Health and Human Services to give states more flexibility in how they manage Medicaid. More than half the states “want permission to remove hundreds of thousands of people from the Medicaid insurance program,” and some conservative governors are proposing radical changes to how the program is financed.

Under the current arrangement, Medicaid — which provides health coverage to approximately 53 million lower income Americans — operates under a matching fund basis. That is, the federal government matches state spending on a per-claim basis; it pays a fixed percentage of each state’s Medicaid costs (anywhere between 50 and 75 percent), sending more money to the states as their costs increase. It in turn also requires states to maintain certain eligibility and benefit standards and grants waivers to states that seek to alter the program on a case-by-case basis.

But as Politico’s Sarah Kliff reports, GOP governors attending the National Governors Association’s winter meeting are now asking the federal government to permanently convert the the existing matching system into block grants, where states would receive a fixed dollar amount annually that would fall below current growth projections:

“For myself, I would take a capped blocked grant in return for true flexibility to run the program,” Mississippi Gov. Haley Barbour told reporters. “We could use money more widely.”

Barbour said that he’s heard “a lot of talk” about Medicaid block grants throughout the NGA conference and would expect to hear more of it as the meetings continue through Monday….

Florida Gov. Rick Scott even took to CNN’s “State of the Union” Sunday morning, before attending the NGA health meeting, to make the case for block grants.

“All of us know that Medicaid is a problem for the states,” he said. “So we are going to do a better job of managing our Medicaid population and our Medicaid program. We would like the federal government to just give us a block grant because I could spend the money way better without all the strings attached.”

While anyone would welcome state-centric proposals that reduce costs without undermining coverage, under this arrangement, the cost of the program is shifted from the federal government to the states, which would be responsible for bearing the cost of any increases in Medicaid spending once the capped federal contribution is exhausted. In all practicality, states would either have to increase their contribution to the program or (more realistically) cap enrollment, cut eligibility, stop offering mandatory benefits, lower provider reimbursements etc. As the CBO put it in examining Rep. Paul Ryan’s (R-WI) Medicaid block grant proposal: “reducing federal payments for Medicaid relative to currently projected amounts would probably require states to provide less extensive coverage, or to pay a larger share of the program’s total costs, than would be the case under current law.”


After all, had the block grant structure been in effect during the Great recession, when an increasing number of Americans lost their employer-sponsored health care coverage and turned to the Medicaid program, it’s likely that states would be in even more dire straights. Under the block grant proposal, states would have received significantly less from the federal government than under current law and would have had to absorb significantly higher Medicaid costs while dealing with plummeting state tax revenues and large budget shortfalls. That would meant a lot more people without coverage and as CAP’s Tony Carrk explains, a far higher unemployment rate.

Instead, the federal government reacted to the economic crisis by temporarily increasing its share of Medicaid funding in the Recovery Act. Those funds are set to expire on June 30 and states will have to make up for the budget shortfall until new federal funds can be used to expand the Medicaid program in 2014 (in accordance with the Affordable Care Act). HHS is working with states to find maximum savings and today President Obama asked the NGA to form a bipartisan task force that would develop solutions to lower health costs. But those proposals shouldn’t leave millions of lower income Americans without coverage or establish a system of financing that would force states to curtail their health programs during the periods of greatest need.