News Release

A Medicaid Block Grant Would Reduce Federal Spending But Trigger Substantial Cuts in Medicaid Coverage in the States That Would Increase the Uninsured

May 10, 2011

New State-By-State Analysis Shows House Budget Plan For Medicaid Would Reduce Enrollment By Tens of Millions Of People And Cut Funding For Hospitals And Other Medicaid Services

WASHINGTON, D.C. — Converting Medicaid into a block grant and repealing the health reform law as adopted by the House last month in a party-line vote would trigger major reductions in program spending and enrollment compared to current projections, a shift with big implications for states, hospitals and tens of millions of low-income Americans who likely would become uninsured, according to an analysis released today by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured.

Under the House Budget Plan, advanced by House Budget Committee Chairman Paul Ryan, projected federal spending on Medicaid for the period 2012 to 2021 would fall by $1.4 trillion, a 34 percent decline. In 2021, the end of the typical 10-year budget window used by Congress, states would receive $243 billion less annually in federal Medicaid funding than they would under current law, a 44 percent reduction, as shown in Figure 1. The plan’s two-pronged approach would curb Medicaid spending and enrollment by eliminating the Patient Protection and Affordable Care Act (ACA) and its major Medicaid expansion scheduled to begin in 2014, and by capping the amount of federal funding for Medicaid through a block grant.

051011_02kcmuAccording to the new analysis of the plan conducted by researchers at the Urban Institute working with analysts at the Foundation, total federal Medicaid spending reductions over the next decade relative to current law would range from a 26 percent drop in Washington, Vermont and Minnesota, to 41 percent declines Oregon, Georgia and Colorado and a 44 percent decrease in Florida. The analysis also finds that hospitals could see their Medicaid payments fall by as much as 38 percent, relative to current projections, in 2021.

“Under the House Budget Plan, the Medicaid block grant would reduce and cap federal Medicaid spending, substantially reducing states’ ability to provide coverage to low-income Americans,” said Diane Rowland, Executive Vice President of the Foundation and Executive Director of the Kaiser Commission on Medicaid and the Uninsured. “The repeal of the ACA combined with the adoption of the Medicaid block grant would add millions more to the number of uninsured Americans and compromise Medicaid’s role as the health safety net in the next recession.”

The effect on enrollment in state Medicaid programs could vary widely. Under the House Budget Plan, between 31 million and 44 million fewer people would have Medicaid coverage relative to expected enrollment under current law, the new analysis finds, after examining three possible scenarios using different assumptions about how states might respond to lower federal funding. Most of those people, given their low incomes and few options for other coverage, would end up uninsured.

The House Budget Plan comes at a time of growing concern about the rising federal budget deficit. Under the current system, eligible low-income children and parents, people with disabilities and older Americans living in nursing homes are entitled to Medicaid coverage and states are guaranteed federal matching payments for this coverage with no cap. Under the block grant system in the plan, there would be no individual entitlement and federal funding would not be open-ended. Starting in 2013, states would get a fixed amount of federal money based on a formula rather than actual costs. That amount would increase annually with population growth and inflation and states could have more authority to cut back on eligibility levels or freeze enrollment.

Impact on enrollment

Because Medicaid is financed jointly by the states and the federal government, the impact of the House Budget Plan on program enrollment would depend in part on the spending and policy choices that states make in the face of diminished federal funding. The analysis examines three possible scenarios for state responses to the block grant which would produce decreases in Medicaid enrollment relative to current projections ranging from 31 million people to 44 million people nationally, as shown in Figure 2. Between 14 million and 27 million low income people would lose coverage due to the implementation of the block grant alone, the analysis finds.

051011_01kcmuIn terms of state-level impacts, one scenario, for instance, finds estimated Medicaid enrollment reductions relative to current projections ranging from 32 percent in Vermont to 56 percent in Oregon. To forestall these enrollment cuts, states would need to increase state spending by 45 percent to 71 percent to offset losses in federal spending, the analysis finds.

Impact on hospitals

Across the country, health centers, hospitals and safety-net facilities that serve low-income and uninsured people rely heavily on Medicaid revenues. By 2021, hospitals could see reductions in Medicaid funding of between 31 percent and 38 percent annually, or as much as $84.3 billion, under the House Budget Plan compared with projected funding under current law. The reductions would come at a time when millions more people would lack coverage, increasing the potential demand for uncompensated hospital care.

The full analysis, including an in-depth discussion of methodology and state-by-state data tables, is available online.

The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, California, dedicated to producing and communicating the best possible information and analysis on health issues.

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid’s role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation’s Washington, D.C. office, the Commission is the largest operating program of the Foundation. The Commission’s work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy.

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The independent source for health policy research, polling, and news, KFF is a nonprofit organization based in San Francisco, California.