Medicaid Block Grant Would Slash Federal Funding, Shift Costs to States, and Leave Millions More Uninsured
November 30, 2016 - Center on Budget and Policy Priorities
by Edwin Park
If confirmed, President-elect Trumpfs nominee for Health and Human Services
Secretary — House Budget Committee Chair Tom Price — will be well-placed to
advance a proposal that hefs previously supported as part of recent House
Republican budget plans to fundamentally change the structure of Medicaid by
converting it into a block grant.[1]
Trump[2] and
House Speaker Paul Ryan[3] also have supported converting Medicaid into a block
grant, which would likely eliminate the guarantee that everyone whofs eligible
and applies for its benefits would receive them and probably give states
sweeping new authority to restrict eligibility, cut benefits, and make it harder
for people to enroll. The incoming White House and Republican
congressional leaders are reportedly planning to pursue such a block grant in
2017, in addition to repealing the Affordable Care Act (ACA).[4]
A Medicaid block would institute deep cuts to federal funding for
state Medicaid programs and threaten benefits for tens of millions of low-income
families, senior citizens, and people with disabilities. To compensate for
these severe funding cuts, states would likely have no choice but to institute
draconian cuts to eligibility, benefits, and provider payments. To
illustrate the likely magnitude of these cuts, an analysis from the Urban
Institute of an earlier block grant proposal from Speaker Ryan found that
between 14 and 21 million people would eventually lose their Medicaid coverage
(on top of those losing coverage if policymakers repeal the ACA and its Medicaid
expansion) and that already low provider payment rates would be reduced by more
than 30 percent.
A block grant would cap federal Medicaid funding in order to achieve
savings for the federal government. Under current law, the
federal government picks up a fixed percentage of statesf Medicaid costs: about
57 percent, on average (outside of the ACAfs Medicaid expansion). In
contrast, under a block grant, states would receive a fixed dollar amount, with
states responsible for all Medicaid costs in excess of the cap.
Because a Medicaid block grant is explicitly intended to produce significant
federal budgetary savings, block grants are designed in ways that give states
considerably less federal funding each year than they would receive under the
current financing system. That is typically accomplished by basing a
statefs initial block grant amount on its current or historical spending and
then increasing it annually at a considerably slower rate — such as general
inflation — than the currently projected annual growth in federal Medicaid
spending. The resulting federal funding cuts would thus grow steadily
larger each year.
The likely magnitude of the federal funding cuts and resulting
cost-shift to states would be very large. The House Republican
budget plan for fiscal year 2017, for example, would have cut federal Medicaid
funding by $1 trillion — or nearly 25 percent — over ten years,
relative to current law, on top of the cuts the plan would secure from
repealing the ACAfs Medicaid expansion.[5] By the budget planfs tenth year (2026),
federal funding for Medicaid and the Childrenfs Health Insurance Program (CHIP)
would have been $169 billion — or about 33 percent — less than under
current law (see Figure 1). The size of the cuts would have kept growing
after 2026.
Moreover, the actual cut in federal funding for states, relative to current
law, would be even greater in years when either enrollment or per-beneficiary
health care costs rose faster than expected. For example, as people lose
their jobs and access to employer-sponsored insurance during a recession, many
become newly eligible for and enroll in Medicaid. In addition,
developments in new treatments that improve beneficiariesf health but raise
costs, and the onset of epidemics or new illnesses like Zika (or HIV/AIDS in the
1980s), can produce significant unexpected increases in medical costs.[6]
Currently, the federal government and states share in those unanticipated
costs. Under a block grant, however, states alone would bear them.
Furthermore, while all states would face substantial reductions in federal
funding under a block grant, some would likely be hit particularly hard — such
as states whose current Medicaid spending levels are already relatively low and
states whose spending is expected to rise relatively quickly in future years due
to demographic, economic, or other factors.[7]
Figure 1
Such a block grant would push states to cut their Medicaid programs
deeply. To compensate for the federal Medicaid funding cuts a
block grant would institute, states would either have to contribute much more of
their own funding or, as is far more likely, use the greater flexibility the
block grant would give them to make draconian cuts to eligibility, benefits, and
provider payments. For example, Speaker Ryanfs gBetter Wayh health plan
would give states the choice of a block grant or a Medicaid per capita cap; both
would appear to enable states to make sizeable cuts directly affecting
beneficiaries that states canft make now. This could include using waiting
lists or capping enrollment; under current law, all eligible individuals who
apply for Medicaid must be allowed to enroll. States also could be allowed
to no longer provide children with a comprehensive pediatric benefit known as
EPSDT (Early Periodic Screening, Diagnostic, and Treatment), under which
children enrolled in Medicaid receive both regular check-ups and coverage for
all medically necessary treatments that the check-ups find a child
needs.
In addition, states could be permitted for the first time to impose a work
requirement and terminate coverage for people deemed non-compliant. This
could result in people with various serious barriers to employment — such as
people with mental health or substance use disorders, people who have difficulty
coping with basic tasks or have very limited education or skills, and people
without access to child care or transportation — going without health
coverage.[8]
States would also likely be able to begin charging significant premiums,
deductibles, and co-payments at levels that research suggests would likely cause
poor people to forgo coverage entirely or go without needed care.
Medicaid is already efficient and innovative. Block
grant supporters, including House Republican leaders, often argue that states
could compensate for the substantial losses in federal funding they would
experience under a block grant by using added flexibility to cut costs without
harming beneficiaries. That claim doesnft withstand scrutiny.
Medicaid costs per beneficiary already are far below those of private insurance,
after adjusting for differences in health status, due to lower payment rates to
health care providers and lower administrative costs, even though Medicaid
provides more comprehensive benefits than private insurance at significantly
lower out-of-pocket cost to beneficiaries. And over the past three
decades, they have also grown much more slowly, on average, than private
insurance per-beneficiary costs.[9]
They are expected to continue growing more slowly than costs under private
insurance in coming years, according to the Medicaid and CHIP Payment and Access
Commission.[10]
In addition, states already have substantial flexibility in how they deliver
Medicaid services. For example, they have dramatically expanded the use of
managed care over the last two decades, instituted cost-containment strategies
in areas like prescription drug spending, and in recent years, have adopted
numerous innovative reforms in how they deliver care to Medicaid beneficiaries
that improve quality of care while lowering costs.[11]
A Medicaid block grant would thus lead to draconian cuts to
eligibility, benefits, and provider payment rates. As the
Congressional Budget Office concluded in 2012 when analyzing a Medicaid block
grant proposal from then-House Budget Committee Chairman Paul Ryan: gthe
magnitude of the reduction in spending . . . means that states would need to
increase their spending on these programs, make considerable cutbacks in them,
or both. Cutbacks might involve reduced eligibility, . . . coverage of
fewer services, lower payments to providers, or increased cost-sharing by
beneficiaries — all of which would reduce access to care.h[12] The Urban Institute estimated
that the 2012 Ryan proposal would lead states to drop between 14.3 million
and 20.5 million people from Medicaid by the tenth year (in addition to the
effects of repealing health reformfs Medicaid expansion).[13] Thatfs an enrollment decline
of 25 to 35 percent. Urban also estimated that the 2012 Ryan block grant
would lead states to cut reimbursements to health care providers by more than
30 percent, even though, as noted, provider payments are already much
lower than what private insurance and Medicare pays. That could result in
many fewer providers and health plans participating in Medicaid, making it far
more difficult for beneficiaries to obtain needed
care.