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How Medicaid Block Grants Would Work

Mar 06, 2011

Mississippi Gov. Haley Barbour and other Republican governors recently demanded that Medicaid, the state-federal health program that covers 50 million poor and disabled, be transformed into block grants. "Y’all would save a lot of money if you let us run the program," Barbour told a congressional committee.

Such statements are being embraced by House Republicans, who are vowing to tackle costly programs to reduce federal spending. But any effort to turn Medicaid into block grants – federal lump-sum payments to states – raises a host of questions. Democrats argue such a move could result in loss of health care coverage for millions of people who are poor, sick and old.

Beyond the argument is a deeper debate: What should the federal government do to help states maintain a safety net? How should Washington handle fast-growing entitlement programs such as Medicaid, Medicare (the federal health program for seniors and disabled) and Social Security? The issues could have a big impact on the 2012 elections. Here’s how the battle is playing out:

How would a Medicaid block grant work?

Democrats and Republicans agree that turning Medicaid, which in fiscal 2009 cost state and federal governments $366 billion, into a block grant would fundamentally alter the program.

Because Medicaid is an entitlement program, everyone who is eligible is guaranteed a spot. The federal government, which pays for nearly 60 percent of the cost, has an open-ended commitment to help states cover costs; in return, it requires them to cover certain groups of people and to provide specific benefits. For example, children, pregnant women who meet specific income criteria and parents with dependent children must be covered.

A block grant would effectively end this open-ended approach and provide states with annual lump sums. States would be freer to run the program as they wanted. But states would also be responsible for covering costs beyond the federal allotment.

I’m not on Medicaid. Why should I care about this?

First, under the new health care law, an estimated 16 million more people will become eligible for Medicaid in 2014. So, before long, a lot more people will be in the program or know someone who is.

Second, the debate, which gets to the core of the social contract between the government and its citizens, has implications for the other big entitlement programs -- Social Security and Medicare. Last year, the federal government spent $1.5 trillion on those programs, which consumed about 43 percent of the federal budget, according to the Congressional Budget Office

In a March 3 interview with The Wall Street Journal, House Speaker John Boehner said House Republicans’ upcoming budget proposal would curb entitlements, including Social Security and Medicare, despite the political risk of taking on such popular programs. 

Democrats are skeptical. Turning Medicaid into a block grant means "you have no guarantee that people who are now covered will continue to be covered, or whether [the states] will simply cut back on their Medicaid program," says Rep. Henry Waxman, D-Calif., a longtime champion of the program.

Why are Republican governors pushing for block grants?

Governors have long lobbied for a freer hand on Medicaid, which they say would result in a cheaper, more effective program. Lately, Republican governors have more aggressively pursued the block-grant idea, partly because they’re worried about the cost of adding millions more people to the program beginning in 2014. (The federal government will pick up the whole tab for new enrollees for the first three years, tapering down to 90 percent in 2020 and beyond.) Governors also are alarmed at Medicaid’s growth rate, which the CBO estimates at 7 percent annually over the next decade. The program, some state officials say, is crowding out other needs, such as education.

The Republican governors also have other reasons to complain about Medicaid’s costs. They’re pushing hard to get leeway from the Obama administration on a rule barring them from tightening Medicaid eligibility before 2014. Some governors want to cut people from the rolls right away.

Matt Salo, executive director of the National Association of Medicaid Directors, says that talk of block grants is a "distraction. The real issue, as the president said to [governors at their Washington meeting] is, if there are Medicaid flexibilities we can do, let’s do them."

Critics of block granting argue it wouldn’t solve states’ fiscal woes. "Governors keep talking about how [block grants] would improve predictability and stability for Medicaid and their budgets," says Edwin Park, vice president for health policy at the liberal Center on Budget and Policy Priorities. But block grants, he says, are intended primarily to produce savings for the federal government.

What are the prospects for block granting Medicaid?

Not good at the moment. Even if such legislation passed the House, which is dominated by Republicans, the Democratic-controlled Senate would kill it. But things could change if the GOP were to take control of Congress and the White House in 2012.

Haven’t Republicans proposed Medicaid block grants before?

Yes. Block grants were pushed by President Ronald Reagan in 1981, House Speaker Newt Gingrich in 1995 and President George W. Bush in 2003. Gingrich came the closest to succeeding. Congress passed legislation to turn Medicaid and the welfare system into block grants, but President Bill Clinton ultimately agreed only to block grant welfare, which became the Temporary Assistance for Needy Families program.

What exactly are House Republicans proposing now?

They haven’t unveiled any proposal yet, but one idea getting serious consideration is a proposal developed by House Budget Committee Chairman Paul Ryan, R-Wis., and Alice Rivlin, a senior fellow at the Brookings Institution, who served as director of the Office of Management and Budget under Clinton.

Under their plan, the federal share of Medicaid would be converted to a block grant in 2013, and be indexed to increase with the size of the Medicaid population as well as the growth in the gross domestic product per capita plus 1 percentage point. States would have more flexibility to administer the program. According to the CBO, the plan would reduce federal spending by $180 billion over the next decade.

What do people think about it?

Liberals say the Rivlin-Ryan plan wouldn’t keep up with rising Medicaid costs. Edwin Park of the Center on Budget and Policy Priorities says that federal Medicaid funding would grow up to 1.5 to 2 percentage points less each year than under the current system, and not provide additional funding if there were a recession.

But Brian Blase, a policy analyst at the conservative Heritage Foundation, says that the Ryan-Rivlin proposal would get rid of "perverse incentives for states to bring as much into their Medicaid umbrella as possible."

He also dismisses Park’s assumption that a block grant would be so rigid that it would not allow for additional federal contributions to account for population growth and recessions.

 

Marilyn Werber Serafini is the Kaiser Family Foundation’s Robin Toner Distinguished Fellow based at Kaiser Health News. The fellowship honors the late Robin Toner, The New York Times' long-time health and politics reporter whose work often framed the public debate on health issues. KHN is an editorially independent program of the foundation.



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