Medicaid Block Grant Would Leave States Holding the Bag – Say Ahhh! A Children’s Health Policy Blog


By Edwin Park, Center on Budget and Policy Priorities

In a previous post, I explained why block-granting
Medicaid or otherwise capping its funding is no solution to rising costs. 
It’s also a really bad deal for states, as a report CBPP released on February
23 explains.  A block grant would shift significant financial risks and
costs from the federal government to the states, especially during recessions.

The federal government now pays a fixed percentage of
each state’s Medicaid costs, so when state costs go up, federal costs go up
too, automatically.  Under a block grant, the federal government would pay
only a fixed dollar amount of state costs, leaving the state responsible for
the rest.

Most block grant proposals — and any proposal Congress
will likely consider this year — are designed to generate large federal savings
by giving states much less funding than they would receive under the current
system.  For example, a recent proposal by House Budget Committee Chairman
Paul Ryan (R-WI) and Alice Rivlin of the Brookings Institution would increase
federal funding by up to 2 percentage points less each year than projected cost
growth, with the difference compounding over time.  This plan would reduce
federal funding by $180 billion just through 2020, compared to current law,
according to the Congressional Budget Office.  The cuts in funding would
grow substantially larger over time.

If federal funding proved inadequate under a block grant,
states would have to contribute more of their own funds or cut back Medicaid eligibility,
benefits, and provider payments.  Federal funding would no longer rise
automatically in response to a recession or unanticipated costs resulting from
epidemics or medical breakthroughs that improve health or save lives but
increase costs.  States facing these cost increases would have to bear the
entire burden themselves (once they exhausted their annual block grant

Block grant proposals typically combine a cut in federal
funding with increased flexibility for states to override federal requirements
related to eligibility and benefits.  Some states may believe they can use
that flexibility to make up for the loss of federal funding by making their
programs more cost-effective — without unduly cutting eligibility, benefits, or
provider payments.  Such hopes would likely prove unrealistic:

already have considerable flexibility over Medicaid spending and have used it
to make significant cuts in response to the state budget crisis.

The funding
reductions under a block grant — like the $180 billion cut through 2020 under
the Ryan-Rivlin proposal — would be impossible to achieve without deep cuts
both to beneficiaries and to doctors, hospitals, and other health care

 The ensuing
cuts could harm tens of millions of low-income children, parents, pregnant
women, seniors, and people with disabilities, putting many at risk of being
uninsured or going without needed care.

Block-granting may be attractive to some federal
policymakers as a way to cut costs.  But states would be left holding the
bag when federal funding proved inadequate; they’d be the ones who would have
to increase their own funding or make the tough decisions about which people to
drop from coverage or which medical services to curtail.

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