Trump Administration Revs Up Push for Medicaid Block Grants

Budget proposal lauds block grants as 'the only way to reform Medicaid.'

This article was first published on Tuesday, April 9, 2019 in MedPage Today.

By Joyce Frieden, News Editor, MedPage Today   

WASHINGTON -- The Trump administration's message is clear: in Medicaid, block grants are the way to go.

"The budget ... proposes to give states additional flexibility over their Medicaid programs by transferring control of Medicaid transformation efforts locally where it belongs," the White House said in its message accompanying its fiscal year 2020 budget proposal. "The administration recognizes that the only way to reform Medicaid and set it on a sound fiscal path is by putting states on equal footing with the federal government to implement comprehensive Medicaid financing reform through a per-capita cap or block grant."

"A new federal-state partnership is necessary to eliminate inefficient Medicaid spending, including repeal of the Medicaid expansion, and reducing financing gimmicks such as provider taxes," the document continued. "The budget would empower states to design state-based solutions that prioritize Medicaid dollars for the most vulnerable, and support innovation."

The block-grant proposal isn't likely to get approved by Congress, given that the House is under Democratic control, but the administration also has other ways of pursuing its block-grant agenda. The Centers for Medicare & Medicaid Services (CMS) is reportedly working on a plan to encourage states to apply for what's known as Section 1115 waiver authority to implement their own Medicaid block grants.

In particular, CMS Administrator Seema Verma urged Alaska to be the first state to apply for block grants, according to a letter that Alaska Gov. Mike Dunleavy (R) wrote to President Trump on March 1. "We are eager to do this, but your support of her on this 'first' will keep the proper focus and speed on the application," Dunleavy wrote.

Several other Republican-led states, such as Utah, are also considering some form of block grants for the Medicaid program, according to news reports. As part of its request to partially expand its Medicaid program, the state is thinking about asking that the federal government's share of funding the newly eligible Medicaid beneficiaries be paid using a per-capita cap – a fixed dollar amount per enrollee.

Per-capita caps are a more flexible form of block-granting, since the amount of money being spent can increase as the number of beneficiaries increase. The other type of block-granting referred to in the president's budget proposal is a "hard cap" – fixed amount of money overall, with no increase in funding if more beneficiaries enroll than anticipated.

Block-granting of either kind worries some Medicaid supporters.

"Block grants would really undermine the current guarantee of health insurance that the Medicaid program provides to the people eligible for it [such as children, people with disabilities, seniors who need long-term care]," Joan Alker, executive director of the Georgetown University Center for Children and Families here, said in an email.

"These are vulnerable populations and the Medicaid program is a critical part of the healthcare system, really serving folks for whom the private insurance system is not working, either because it's too expensive or not comprehensive enough to address their needs in the case of people with disabilities. So limiting the amount of funding is very problematic."

"Obviously if there are ways to save Medicaid in the right way, i.e., like prescription drug costs, let's work on those together," she added. "But undermining states' ability to provide coverage or limiting coverage folks are getting, or limiting or capping enrollment, all of those issues are very problematic from a beneficiary perspective."

This is especially true if a state suffers from an unexpected problem such as a flu epidemic or a natural disaster, she added. "Right now [the financing] structure is designed to respond to unanticipated events like a disaster or a flu epidemic, and to expected events like a recession. State budgets are very challenged during recessions; it's very important when a recession comes along that federal funding for Medicaid is not capped."

The left-leaning consumer group Families USA also dislikes block grants. "If a state's costs exceed the amount of the block grant, it will have to use its own funds to make up the difference, or, more likely, cut services for low-income residents," the group wrote on its website. "Block grants would make it harder for states to serve their residents' healthcare needs."

But proponents say block grants allow states to adapt to changing circumstances. "Direct block grants to the states would enable states to better target assistance to those in need," according to the supporters of the Healthcare Choices proposal, a plan being advocated by a variety of conservative groups, including the Heritage Foundation and the Galen Institute.

That proposal calls for using block grants to replace the money states are now getting from the federal government to implement Affordable Care Act programs such as Medicaid expansion and premium subsidies for private insurance. "States would receive block grants from the federal government, which they would use to stabilize their markets and provide assistance to those with low incomes and to the sick and needy," the proposal authors wrote.

Clay Farris, a Medicaid consultant in Birmingham, Alabama, said that block-granting will help states to better target their efforts at serving the Medicaid population. "The 'pros' will true up any time an organization or program has to get more efficient," he said in a phone interview. "I think it will focus [the program]; in a lot of ways Medicaid has drifted in terms of its original intent [of] serving the most vulnerable populations."

The biggest "con" to block grants is a psychological one "in that we are accustomed to Medicaid money never running out," he added. "States have to balance their budget, but the federal [Medicaid] money has always been there and is always increasing, with few questions asked, so it's terrifying [when] all of a sudden there's an actual limit on it. That's a very fearful thing ... We don't know how to operate without unending streams of financing."