Switch to Medicaid Block Grants Gets Close Scrutiny

The budget proposal unveiled by Rep. Paul Ryan (R-WI) on March 20 includes a plan to convert the current federal share of Medicaid spending into a block grant to each state. The block grant would be indexed to inflation and adjusted to meet changes in a state’s population. According to Ryan, “States will no longer be shackled by federally determined program requirements and enrollment criteria. Instead, they will have the freedom and flexibility to tailor a Medicaid program that fits the needs of their unique populations.  

The switch to block grants has been supported by Republican legislators for years; Newt Gingrich supported such a policy change when he was Speaker of the House and Bill Clinton was governor. But the proposal is looked at warily by some governors – even Republican governors. As reported in the publication The Hill, Gov. Scott Walker (R-WI) called for block grants to be an option for states, something they could either opt in or out for. 

In 2011, when Ryan first proposed a block grant approach, Walker was much more direct in his support. Walker wrote in the New York Times “Block grants would bring a truce to the tug-of-wars between Washington and the states. This is the best option for Medicaid, facing a midlife crisis, to survive.” 

According to Ryan, his budget plan would reduce federal Medicaid spending by $750 billion over 10 years. The Congressional Budget Office has estimated that the Ryan plan would reduce federal Medicaid spending from 2 percent of gross domestic product in 2011 to 1¼ percent in 2030 and 1 percent in 2050. Federal Medicaid spending would be 75 percent less in 2050 under Ryan’s plan than under current policy, according to the CBO. 

The Kaiser Commission on Medicaid and the Uninsured has followed the issue of Medicaid block grants for years. In a 2011 report, Kaiser notes, “While a block grant can be structured in a number of ways, block grants generally provide fixed federal allotments to states that are based on current expenditures trended forward using a pre-determined growth rate.” Kaiser also highlighted some of the issues that always arise whenever the talk in Washington moves to block grants – 

  • To achieve federal savings under block grants, Medicaid funding would have to be set below expected levels.
  • Pre-determined levels of funding would not be responsive to program needs.
  • Allocating limited federal funds equitably across states is difficult.
  • A block grant would eliminate the entitlement to Medicaid, so coverage would not be guaranteed.
  • To maintain accountability for federal dollars, capped financing arrangements generally impose requirements on states. 

The Kaiser report also looked at the implications of block grants on beneficiaries, long-term care, providers, state economies, and federal government control over the Medicaid benefit. 

Beneficiaries. Under a block grant, Medicaid would stop being an entitlement program and states would have the ability to eliminate current recipients of Medicaid benefits from eligibility. States also could cut back on the types of benefits offered. This could lead to an increase in a state’s uninsured population. States would also have the ability to increase cost-sharing for Medicaid recipients. 

Long-term care. Under a block grant, states could limit eligibility, extend waiting lists to nursing home services. States could eliminate current protections against the impoverishment of spouses of nursing home residents and also require adult children or other family members to contribute to the costs of nursing home care of their Medicaid-eligible parents or siblings.  

Providers. Medicaid is the largest payer for long-term care and public mental health services. These provider types would be at a higher risk if federal Medicaid financing were reduced or capped. According to Kaiser, “Many safety-net providers that rely heavily on Medicaid revenues make trauma and emergency room services available to the broader community. Limited provider payments could restrict these services.”

State budgets. Assuming that a federal Medicaid block grant would result in less federal money flowing to states, a block grant program would reduce state revenues, leading to a potential decrease in state economic growth and state employment. It will also expose states to more financial liability if there is an economic downturn. 

Federal oversight. Providing states with more flexibility will likely lead to more variation in  Medicaid programs from state to state, and the federal government will have less accountability relating to states providing a basic level of medical services under Medicaid.