Is Medicaid Too Big to… Block Grant?

When former president Donald Trump said he would not cut Social Security or Medicare if elected, his silence on Medicaid raised eyebrows in the health policy world. Afterall, Medicaid is our largest public health insurance program covering about 85 million Americans. It is also the single largest source of federal funding for states. His comment conjured up images of a return to the wars over a Medicaid block grant or a variation on it called a per capita cap. Both give states greater flexibility over eligibility and benefits in Medicaid in return for big cuts over time in federal Medicaid spending. It’s an idea that first surfaced with Ronald Reagan and has reappeared several times since. Now it’s one of the proposals included in plans put together by the Republican Study Committee in the House, and it’s likely to resurface if Trump and the Republicans emerge with control of the government in November. It’s such a significant policy change affecting so many people and every state that it’s worth revisiting the essentials of the idea as well as its politics and prospects.

There have been numerous block grant and per capita cap proposals over the years. Some would give states a fixed amount or “block grant” for all of the Medicaid program and some for parts of it. Some would cap the amount of federal funding states get on a per person basis, allowing funding to grow with enrollment. More recent plans combined the idea with Affordable Care Act (ACA) repeal. For example, the Graham-Cassidy proposal, which emerged in the 2017 ACA repeal debate, combined a block grant for ACA subsidies and ACA Medicaid expansion with a cap in the traditional Medicaid program.  All would set funding levels well below what the federal government is expected to spend under the current program to produce significant federal budget savings. Most would phase in the changes to cushion the impact. All would give states substantially greater flexibility to operate their programs.

How big would the cuts be? They can be any size but as an example, the Congressional Budget Office (CBO) projected that one of the Medicaid block grant plans put forward as part of the Republican Repeal and Replace debate in 2017 would have reduced federal Medicaid funding by more than 25% over 10 years and 30% over 20 years. Medicaid is already a low-end payer for many services in many states, and less money for states can only mean three things: Covering fewer people, cutting benefits, and the time-honored favorite, lowering payment rates for providers. There is no magic delivery reform that is an alternative to these outcomes. Of course, states could also reduce spending on other budget lines items to keep Medicaid whole, such as education and corrections, or raise taxes, although these are hardly palatable options. They could also shrink their Medicaid programs, leaving more people reliant on safety net hospitals and clinics and without insurance.

Block grant and per capita cap proposals can be exceedingly complex, with arcane formulas for increasing federal spending over time. That makes them difficult to decipher for the media, elected officials and the public, and it can take time for their impact to sink in. One characteristic of many of the proposals that can be tricky to disentangle is their differential impact on states. The Graham-Cassidy proposal, for example, would have capped federal Medicaid spending and repealed the ACA Medicaid expansion and individual insurance market subsidies and replaced them with a new block grant program to states, reducing federal funding by $160 billion between 2020-2026. The ACA subsidy and Medicaid expansion reductions accounted for $107 billion of that reduction, but with substantial redistribution across states. Expansion states would have lost $180 billion for ACA coverage but non-expansion (meaning a number of red) states would have gained $73 billion over the time period (Graham-Cassidy proposal).

The politics of a Medicaid block grant are also complex and generally have not been favorable for advocates of the idea beyond their initial ideological appeal to conservatives. Now changes in Medicaid have made the hill steeper.

Governors generally like the broad idea of greater state flexibility to run their programs, feeling that their federal “partners” constrain them more often than they help them. That’s why both blue and red states seek waivers under Medicaid, albeit generally to pursue very different policy directions. Even I admit to those sentiments as a former state human services commissioner responsible for Medicaid. Where most get off the train is when they learn that the flexibility comes with big reductions in federal funding that will make them the bad guy when they pass those cuts on in some form. Even if cuts are deferred until after they are out of office, they often also see themselves as stewards of their states and know that state funding will not be there to make up the difference in an economic downturn when states count on Medicaid to play its counter-cyclical role, as it is designed to do. Indeed, in the past, the federal government has increased matching rates during economic emergencies to help bail states out, most recently during Covid. There would be no matching rate to dial up in an economic emergency with a block grant. The most conservative governors who share a zeal for cutting back public programs and public coverage will hang in and support the idea, but most governors likely will not.

Many providers will also oppose a Medicaid block grant coupled with cutbacks in federal funding, especially urban and rural and children’s hospitals and nursing homes, a powerful lobby in many states. These providers complain about Medicaid rates but rely on its revenues. For these reasons, opposition has grown as budget impacts become clearer. Opposition from Democrats has been fierce. For Democrats, preserving the entitlement nature of Medicaid and the coverage that comes with it is non-negotiable, and it’s almost unthinkable to them to reverse course after decades of building on Medicaid to broaden coverage and reduce the number of uninsured.

Another challenge is the popularity of the program. Republicans target Medicaid because they see it as an unpopular welfare program, perhaps remembering a bygone time when the program mostly covered women and children on the old AFDC program. When Reagan first backed a Medicaid block grant, the program covered fewer than 20 million people. Today’s Medicaid program bears little resemblance to that early program. Medicaid now has a considerably wider reach than Medicare, and as Medicaid has expanded, it has become part of the fabric of American life and vastly more popular with the general public and voters. While not quite sacrosanct like Social Security and Medicare are, it is not far behind and for some time now, the public has been almost as resistant to cutting Medicaid to reduce the deficit as it is to cutting Social Security or Medicare The program’s reach into American society is now deep and wide. For instance, KFF has found that:

  1. Two-thirds of adults in the U.S. say they have had some connection to the Medicaid program, including health insurance (59%), pregnancy-related care, home health care, or nursing home care (31%), coverage for a child (31%) or to help pay for Medicare premiums (23%).
  2. Three-fourths of the public say they have an either “very favorable” (29%) or “somewhat favorable” (47%) view of the program, while one-fifth say they have an unfavorable view. A majority of Democrats (89%), independents (75%) and Republicans (65%) view the program favorably.
  3. Two-thirds of the people living in states that have not expanded their Medicaid programs under the Affordable Care Act to cover more low-income adults say they want to see their Medicaid programs expand.

Perhaps tellingly for the prospects for cutting Medicaid, a back-of-the-envelope internal estimate from several of our polls is that almost a quarter of Medicaid beneficiaries are Republicans and/or lean Republican, a number which likely has grown since Trump came on the scene and built his populist base of non-college educated rural White adults and some minority Americans.

Like The Terminator, the idea of a Medicaid block grant keeps coming back. But the program and its politics have gradually changed. Medicaid is now a much larger and more popular program, touching a wide cross section of American society. That makes it even tougher to reverse course after years of coverage expansion and end the Medicaid entitlement, cap and cut federal Medicaid spending, and hand the largest health care program off to the states.

View all of Drew’s Beyond the Data Columns

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