Medicaid block grants would put states on the hook to find spending cuts for the program.
What attracts conservative is that such a system would over time amount to major cuts to federal spending on the Medicaid program, while shifting the responsibility -- and thus the blame -- to the states to figure out how to find the savings.
“Republicans have been pushing the idea of block granting Medicaid for quite a long time,” said Hank Aaron, a fellow in the economic studies program at the Brookings Institution. “It fits with the long-standing policy of reducing the degree to which the federal government sets rules that governs state behavior." It was debated in the mid-1990s by then House Speaker Newt Gingrich, and again under President George W. Bush.
Proponents argue that states, because they are closer to the ground, are better equipped to find efficiencies in the program and experiment with other ways to save money. The incentive for them to do this is that, under a block grant system, they will have only a set amount of money coming from the feds to use, meaning that states will have to raise new revenues or make their own cuts in Medicaid if the block grants fall short of the costs of covering the enrollees.
“In effect, you’re cost shifting to states, and at some point, if you don’t have enough funding under the block grant, the responsibility falls to the states and the governors are going to have to make some really tough decisions,” said Katherine Hayes, the director of health policy at the Bipartisan Policy Center, who was a Republican staffer on the Senate Finance Committee during the failed block grant push in the 1990s.
States would get a lump sum, instead of a match-rate that rises and falls with the costs of the program.
Medicaid is currently a state-federal partnership where states have wide latitude in implementing the program, but must meet certain criteria to have their Medicaid funding matched by the federal government. As long as that criteria is met, however, the funding is not limited.
Block granting Medicaid would transform the program so that the states would receive the federal funding in a lump sum, rather than in a match-rate for the care provided. The sum each state received could vary, depending on the plan, and proposals have also differed on what metric the federal government would use to increase the funding as time goes on.
A related proposal is known as per capita caps, and under that system, federal funding would be determined with a set amount per enrollee. The advantage of such a system is that it would anticipate an increase in funding if the number of Medicaid enrollees rose. It would not, however, take into account, a rise in health costs on an individual level.
“On the per capita cap side, it could fluctuate based on enrollment, but generally caps would be set -- but tied to some type of increase -- that would not reflect changes in needs or costs of the program” said Robin Rudowitz, a Medicaid expert at the Kaiser Family Foundation.
House Speaker Paul Ryan’s "Better Way" plan would give states the option to choose a block grant or per capita funding, but it’s unclear whether the Trump administration is considering both options.
It will meet resistance – and not just from the left.
The suggestion that the Trump administration was considering block grants contradicted the promise candidate Trump made from the stump not to cut Medicaid, along with other social programs. (Block granting Medicaid, it’s worth noting, was a proposal listed on Trump’s campaign website and Trump himself has mentioned the option in interviews since the election).
Governors of both parties, too, have flagged concerns about that kind of overhaul to the program.
Republican Gov. Charlie Baker (R-MA) told House Republicans in a letter that, “Proposals that suggest states may be provided with more flexibility and control must not result in substantial and destabilizing cost shift to states."
A letter from the National Governor's Association said that it was "critical that Congress continue to maintain a meaningful federal role in this partnership and does not shift costs to states" and that reform proposals "should protect states from unforeseen financial risks" including "a spike in Medicaid enrollment or increased per-beneficiary costs."
Part of the worry is that some states, like Minnesota, are already running efficient programs, according to Hayes.
“You are going to be locking them in at a point in which they feel like they’ve already gotten all the efficiencies they can out of the program, where you have other states that have not done anything,” Hayes said.
More generally, the CBO said in its assessment of Ryan’s 2012 budget that included Medicaid block grants: "... even with significant efficiency gains, the magnitude of the reduction in spending relative to such spending in the other scenarios means that states would need to … make considerable cutbacks."
Getting GOP consensus on a block grant system won't be easy.
Making block granting complicated is that a variety of populations depend on Medicaid, and they each have different level of typical health care costs. Children and low-income enrollees who are young tend to have low per capita costs, while the cost is much higher to cover people with disabilities who use the program, and those over 65 with access to its coverage. Each state has a different make-up of these various populations, and those populations are likely to change over time.
“You have some states that have a disproportionate population of elderly, relative to their populations, and this is one of the reasons there were problems in 1995,” Hayes said. “There were huge battles about state formulas and which states would get how much money, and it was really kept kind of secret.”
The questions multiply from there: Will there be base-level of populations -- such as children or pregnant woman -- that states will be required to cover? Will states be able to impose waiting lists or annual caps on those seeking to use Medicaid? Will there be a minimum set of services states will be need to cover? Will there be any rules to make sure states continue to contribute their own money to the program?
“Clever legislators can always find clever ways to repurpose funds to objectives other than those intended in the original legislation,” Aaron said.
Overhauling Medicaid as part of an Obamacare replacement is an additional wrench.
Unlike past attempts to block grant Medicaid, the latest push comes as GOP lawmakers have struggled to land on a plan to repeal and replace Obamacare. Trump's advisers, and some GOP lawmakers, have signaled they see the Medicaid overhaul as part of their Affordable Care Act alternative.
From a policy level, this puts the Republicans whose states expanded Medicaid under Obamacare in even more of a pinch, as those states stand to lose more if the system was shifted to block grants.
But politically, it will mean more negotiations to get consensus. At last week's GOP retreat, a lawmaker posed a simple question to the panelists leading Republicans' health care discussions, according to a secret recording of the closed-door meeting obtained by the Washington Post: Would states that expanded Medicaid after Obamacare be able to keep the expansion?
"These are decisions we haven't made yet," a panel leader said.