Medicaid block grants would pose challenges for states

If federal support for Medicaid was transformed into a block grant to states, with a per capita cap set by Congress, the impact would vary widely on different states, according to participants in a webinar sponsored by the Alliance for Health Reform. The webinar also focused on the reauthorization of the Children’s Health Insurance Program (CHIP) and state Medicaid waiver requests. The American Health Care Act (H.R. 1628) would transform the federal part of Medicaid into a block grant to states starting in 2020, with a per capita cap on spending. Also, it would roll back the enhanced federal spending for adult Medicaid beneficiaries newly eligible under the Affordable Care Act. (The legislation, which passed the House on May 4, has not yet been considered by the Senate.).

Current Medicaid challenges

Robin Rudowitz, associate director at the Kaiser Family Foundation, noted that certain states are at higher risk if federal funding for Medicaid is transformed into block grants with per capita caps. These states have challenging demographics, including higher populations of people with poor health status, high cost health markets, and limited ability to raise tax revenues. Tony Leys, a reporter with the Des Moines Register, noted that state Medicaid programs already struggle to cover expensive blockbuster drugs, such as those for treating hepatitis C. If the federal Medicaid payment was capped, Leys said, states would struggle to pay for the next blockbuster drug that comes along.

Per capita caps 

Chris Pope, senior fellow at the Manhattan Institute, noted that per capita caps do nothing to prevent future expansions of benefits or eligibility by future Congresses, and may be preferable to the long-term health of the Medicaid program rather than “letting the program continue on autopilot without any real scrutiny.” Hemi Tewarson, program director for the National Governors Association Center for Best Practices’ Health Division, noted, however, that because of the way most states have to prepare their annual budgets “if we were to introduce every year uncertainty around whether the per capita caps would be raised or lowered…that would throw a lot of chaos into state operations, not just impacting health care, but all the their programs they have to make decisions on.”

Pope said that it’s a political decision for states to maintain coverage for Medicaid enrollees if expansion funding from the federal government is rolled back. He added, “There is a substantial overlap between the Medicaid expansion population and the population that would be eligible for substantial subsidies at the bottom of the income distribution covered by the exchange.” These are people who would be eligible for basic insurance plans with capped out-of-pocket spending.

Leys noted that in Iowa, this would be difficult because the state is about to lose its last participating insurer in the Exchange. In addition, Rudowitz said that after the per capita caps would go into place in 2020, the restriction of growth in federal spending would compound over time, putting Medicaid beneficiaries in the higher risk states noted above at greater risk of losing any insurance coverage. Tewarson agreed, noting that for some states disenrollment would be necessary over time as the restriction in federal spending grows.

CHIP reauthorization

The transformation of Medicaid into a federal block grant is not a sure thing, but the deadline for reauthorizing CHIP is. Congress has to regularly reauthorize CHIP, which provides enhanced federal funding to states who offer expanded Medicaid coverage for children; the program is currently extended only until September 30, 2017. Tewarson noted that as states prepare their 2018 budgets, some are planning on the enhanced match being renewed, while others plan on it going away, in which case states have to budget reserves to make up for the lost matching funds. Rudowitz also noted that the continuation of CHIP is a coverage issue; if the program is not reauthorized or the enhanced funding is cut back, states will have to make decisions about coverage and contact beneficiaries in a timely manner.

Medicaid waivers

States have been able to request waivers from federal Medicaid requirements for years; waivers are used by states for demonstration programs related to delivery system reforms, long-term care, behavioral health, among other things. As of February 2017, 33 states have 41 approved Medicaid waivers in place. Since President Trump was inaugurated, states have submitted waivers that would require certain Medicaid beneficiaries to be employed, although none of these waivers have been approved.

Tewarson noted that one of the big question states have regarding waivers is the administrative aspect—”how do you operationalize them?” In considering work requirement waivers, the administrative issues get bigger, she said. “How do we connect systems? What are the real outcomes we want to see from this? How do we define work requirements and who would be exempt?” She also noted that while the Obama administration approved many Medicaid waivers, they had guideposts as to what would or would not be acceptable; work requirements were not one of the acceptable waiver options previously.