GOP governors pushing block grants for Medicaid, policy analysts worry millions could lose coverage

Among the many Republican-backed provisions to cut federal spending is the proposal to transform Medicaid into block grants.

Republicans have posited the initiative as a reform on Medicaid, claiming the transformation will save $180 billion within the next 10 years, according to Kaiser Health News. The Kaiser Family Foundation estimates that the state-federal health program currently covers approximately 50 million poor and disabled Americans.

Many Republican governors are rallying around the initiative. At the National Governors Association Winter Meeting late last month, U.S. House Republican leaders pushed their proposal to turn Medicaid into a block grant for states, an idea that was introduced last November by Rep. Paul Ryan (R-Wis.), the House Budget Committee chairman, and Alice Rivlin, a Brookings senior fellow. Their unofficial proposal is to convert Medicaid’s federal share into a block grant in 2013, to be indexed to increase with the size of the Medicaid population and the growth in gross domestic product per capita plus 1 percentage point. Under their plan, states would be given more flexibility with how the money is distributed.

Last week, Mississippi Gov. Haley Barbour, who is a likely presidential contender for 2012, testified (PDF) before the U.S. House Energy and Commerce Committee, saying that block-granting Medicaid was necessary because states need more flexibility to design Medicaid programs that fit local needs.

From Barbour’s testimony :

The states need the flexibility and authority to craft innovative programs to provide medical care to our neediest citizens. But to do so, we need Congress to cut the red tape states must wade through to implement new programs and save money on what we already do. Through greater flexibility in the management of Medicaid, states might be able to reduce substantially the hidden tax increases that forced expansion of the program will impose. Our citizens should not have to wait years for agencies in Washington to green light new healthcare solutions. We need relief now.

Recently, the Oklahoma Gov. Mary Fallin called for a Medicaid overhaul and was backed by her state’s congressional delegation, according to Tulsa World. According to the paper, both the governor and Republican U.S. Rep. John Sullivan, quoting an Oklahoma Healthcare Authority report, said that President Obama’s health care law will raise Oklahoma’s Medicaid spending by about $440 million.

At the NGA meeting, Florida Gov. Rick Scott was quoted by The Hill saying: “You give me a block grant, let me do whatever I want, and I will cover the right people. If I don’t, I won’t get re-elected.”

Critics of the proposals have said turning Medicaid into federal lump-sum payments that are sent to states could have many negative consequences, one of them being a loss in health care coverage for millions of people. As Kaiser Health News reports, in return for the federal government paying nearly 60 percent of Medicaid cost, states are required to cover certain groups of people, such as children and pregnant women, and to provide specific benefits. A block grant would give states more freedom to run the program as they pleased. However, states would also be on the hook for covering costs beyond what the federal government provides: Kaiser Health News estimates that 16 million more people will become eligible for Medicaid in 2014. In addition, the Congressional Budget Office (PDF) predicts Medicaid spending has increased by $23 billion since 2009, from $366 billion. The CBO also predicts Medicaid will grow 7 percent annually within the next 10 years.

Transforming Medicaid into block grants is has been proposed in the past, according to Kaiser Health: by President Ronald Reagan in 1981, by former House Speaker Newt Gingrich in 1995 (Congress actually did pass legislation that year to turn Medicaid and the welfare system into block grants, but President Bill Clinton only agreed to turn the welfare system into block grants, forming the Temporary Assistance for Needy Families program), and by President George W. Bush in 2003.

The Center on Budget and Policy Priorities says the Republicans' argument that block grants would improve the predictability and stability for Medicaid and state budgets is flawed because block grants are intended primarily to create federal savings.

From the CBPP:

Converting Medicaid to a block grant is attractive to some federal policymakers because it could produce large federal budgetary savings (and, in doing so, potentially ease pressure on certain other parts of the federal budget — such as the tax code, where, for example, policymakers will face a decision on whether to extend the Bush tax cuts for high-income households beyond 2012).  But a block grant would almost certainly shift substantial costs to the states.  Instead of the federal government picking up half to three-quarters of unanticipated Medicaid cost increases that result from a recession, the onset of a new disease, or the development of new pharmaceutical or other treatments, states would have to bear all of those costs themselves (once they exhausted their block grant allocation).  A block grant would make Medicaid much more financially unpredictable and risky for states.

A block grant may also appeal to some federal policymakers because it would force the states to “be the bad guys” — making the decisions about which people to drop from coverage or which medical services to curtail when federal funding proved inadequate.  States would essentially be left “holding the bag” — they would either have to contribute more state funding (by raising taxes or cutting other programs) or, more likely, exercise their increased flexibility to institute wide-ranging cuts in eligibility, benefits, and/or provider reimbursement rates.  Those cuts could add millions to the ranks of uninsured.  They also could impede access to care for tens of millions of people who continued being covered, as a consequence of substantial increases in co-payment and premium charges or cuts in reimbursements that cause substantial numbers of providers to leave the program.

Kaiser Health predicts a bill to transform Medicaid into a block grant won’t clear the Democratic-controlled Senate, but it might have a chance in 2012 if the GOP takes control of Congress and/or the White House.