Two Reports Raise Flags About Medicaid Block Grants, Per Capita Caps

Two new reports suggest that Medicaid block grants could lock in disparities in federal funding between states that spend a lot on the poor and those that do not.

Reports issued last week—one from within the government, one from beyond—cast doubt on whether budgeting Medicaid in flat amounts would have the effect of giving states the flexibility supporters seeks. In fact, the reports suggest that such programs might do the opposite while creating disadvantages for the states whose leaders have advocated the concept.

Both the Urban Institute’s (UI) Health Policy Institute and the Government Accountability Office (GAO) asked whether block grants or per capita spending caps would lock in relative spending levels based on states’ current wealth and spending levels, making it difficult for states to later adjust benefit programs. The problem, according to the UI report, is that this approach would not address differences that have built up over time in what the federal government pays in matching funds based on state-level spending.

“This practice would produce huge differences in the distribution of federal dollars and would generally favor high-income states because they have historically spent more on Medicaid,” the UI report stated.

Thus, the reports suggest, if the states that spend little on Medicaid today ever shift their thinking about providing benefits, it might be hard to undo their position in the financial pecking order. The UI report in particular distinguishes between block grants—which are a set amount of funds that might increase based on a uniform growth rate—and per capita caps, which are a set amount of funding per enrollee. While the latter program protects states against economic downturns—and resulting enrollment spikes—the per capita allotment would stay the same in bad times.

“However,” the UI report reads, “if the predetermined cap is insufficient to provide services at current levels, states would have to choose among increasing state revenue, limiting enrollment, reducing covered benefits, and lowering provider payments (or some combination of these actions).”

While the UI report doesn’t mention him by name, Republican presidential nominee Donald Trump’s advocacy for block grants lurks in the background. The concept has been a favorite of conservatives for some time. Back in 2011, then-Mississippi Governor Haley Barbour, a former chair of the Republican National Committee, told a Congressional committee: “Y’all would save a lot of money if you let us run the program.”

But opponents of block grants don’t trust states that they see as hostile to Medicaid to manage federal monies in a way that gives the poor a basic safety net. Some have noted that even though states like Alabama and Mississippi have not expanded Medicaid, their rolls have increased since adoption of the Affordable Care Act as impoverished citizens have inquired about benefits—and learned they had been eligible for Medicaid all along.

Rather than offer increased flexibility, the UI report said, block grant or per capital policies “would also reduce states’ authority to make policy decisions over their own programs. These mechanisms would threaten current coverage levels and benefits that low-income people often need yet cannot afford.”

“In addition to slowing federal spending growth in Medicaid to reduce spending in real terms over time, the approaches would cement current coverage levels and benefits that low-income people often need yet cannot afford,” UI authors John Holahan and Matthew Buettgens wrote.

The GAO report focused more on the practical difficulties of trying to implement such a plan, given that it would likely create different categories of beneficiaries. Just how much “block” the federal government would allow in a block grant program is unknown, and states might not want every part of the program to be run this way, since states are very different.

A block grant or per capita funding system would not eliminate the need for federal accountability for spending. States have very different needs in areas like transportation, for example.

Payments under a per capital cap might exclude certain beneficiaries with high-cost disabilities, for example, because care for this population is known to cost more. However, the report notes, “such decisions could also affect whether states would have incentives to reclassify enrollees to be included or excluded from the cap.”

Finally, the GAO said, the states and CMS would have to agree on what data sources would be used to determine estimates of eligible enrollees.