Medicaid Block Grants: A Bad Idea That Won’t Go Away

Poverty & Family Economics

Following in the footsteps of other governors like Texas’s Rick Perry, last week Utah Governor Gary Herbert trotted out the very bad and tired idea of pushing for a Medicaid block grant from the federal government. Gov. Herbert’s approach differs slightly from Perry’s in that Herbert is seeking a block grant just for those uninsured adults who would gain coverage through the Affordable Care Act’s Medicaid expansion while Perry’s request was to block grant the entire Medicaid program, which would negatively impact low-income children, the disabled, and senior citizens. Both approaches are misguided.

By definition, a block grant structure is nothing but an arbitrary and capped amount of federal dollars that a state can use, regardless of increasing or declining need. Therefore, during an economic recession when states are undergoing the dual challenges of declining revenues and increased health care needs as people lose their jobs and health coverage, the federal government would provide no additional assistance whatsoever. In fact, block grants are often the very place where Congress looks to make its own budget cuts.

For example, House Budget Committee Chairman Paul Ryan’s previous budget proposal would have turned Medicaid into a block grant and cut the program by $810 billion over 10 years while he was simultaneously arguing that Medicaid needed to be reformed because it often underpays health care providers. Unless you believe that the words “state flexibility” are magical, it makes no sense to suggest that Medicaid needs to increase provider payments while simultaneously cutting the program by $810 billion. The reality and real agenda is that adoption of a Medicaid block grant absolves the federal government of its shared responsibility and simply abandons states and their citizens in need just when federal assistance is most critical.

With respect to magic, the Congressional Budget Office does not believe in it. In its analysis of the Ryan budget proposal, CBO explains:

…the 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 for Medicaid and CHIP, coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries – all of which would reduce access to care.

In sharp contrast, under the current Medicaid financing structure, the federal government provides states with increased federal matching assistance as need increases, such as during economic recessions or natural disasters (i.e., earthquakes, floods, hurricanes, etc.). Money follows the need.

As an example, the number of uninsured children actually declined during the recession due largely to Medicaid. In contrast, the recession brought minimal response from Temporary Assistance to Needy Families (TANF), which is a block grant, and therefore, it failed to mitigate the rapidly rising levels of child poverty that occurred during the recession.

Demographic change is another reason why states should fear Medicaid block grants. In the case of Texas and Utah, they are two of the fastest growing states in the country, but block grants often fail to adjust for changes in population. TANF, for example, gives states the same amount of money it did back in 1996, even though there have been dramatic changes in population in the states over the intervening 18 years.

Block grants also typically lock states in at current spending levels and, according to Kaiser Family Foundation, states like Texas and Utah spend less than the national average and will likely be locked into such levels well into the future under a block grant. Using TANF as the example again, Texas initially received just 31 percent of the average dollars per child in poverty in 1996 but that disparity in funding has grown due to the demographic changes so that Texas receives less than 23 percent of the national average today.

And, if you reject Paul Ryan’s assertion that TANF is a model, one only needs to look at the track record of other block grants. According to a study by the Urban Institute, funding for various block grants have declined pretty dramatically over time. And, a Government Accountability Office (GAO) report finds real per capita funding to states through the Community Development Block Grant (CDBG) has declined since 1978 “by almost three-quarters from about $48 to about $13 per capita.”

Governors, there is no magic in block grants. The reality is it’s about simple math.

This blog post also appears in Huffington Post.