Tag Archives: Per Capita Block Grant

GOP Medicaid Block Grants Cut Costs … and Care

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Most people have heard the aphorism, “if it sounds too good to be true, it probably is.” Referring to the GOP’s cure for Medicaid, “If it sounds too good to be true, it might be true; but guaranteed, it won’t be good.”

A Feb. 6, 2017 report on Medicaid makes this point perfectly. The GOP commissioned a study by Avalere Health, a health care consulting group, to assess the fiscal impact of federal block grants to state Medicaid programs. They evaluated two funding approaches: a lump sum to be negotiated and a per capita, i.e., per enrollee, formula.

Their study showed that block grants could save Washington between $110 billion and $150 billion over five years depending on which formula was used. Roughly half the states would get a small increase in their federal contribution and half would get less, sometimes a lot less. The biggest loser, Arizona Medicaid, would receive 62 percent less than it is currently receiving from Washington.

With the present Medicaid state-federal matching scheme, the more a state spends, the more money it gets from Washington. This produces a classic perverse incentive: rewarding the outcome you don’t want. We want states to reduce spending, yet Washington rewards them—with federal dollars—when they spend more! With a block grant, this perverse incentive goes away. This is a good thing.

Medicaid block grants could save $110-150 billion and would eliminate the perverse incentive. Sounds like a great idea. It makes wonderful sound bytes, and the GOP seems to want to run with it.

There is just one teeny, tiny problem with block grants as proposed: no health care.

How Would Republican Plans for Medicaid Block Grants Actually Work?

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How Would Republican Plans for Medicaid Block Grants Actually Work?

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There are only so many ways to cut Medicaid spending.

You can reduce the number of people covered. You can reduce the benefit coverage. You can also pay less for those benefits and get doctors and hospitals to accept less in reimbursement. Or you can ask beneficiaries to pay more.

None of those are attractive options, which is why Medicaid reform is so hard. Medicaid already reimburses providers at lower rates than other insurance programs. How do you reduce the number of beneficiaries when the vast majority of people covered are poor children, poor pregnant women, the disabled, and poor older people? Which of those would you cut?

Reducing benefit coverage has always been difficult because most of the spending has been on the disabled and poor older people, who need a lot of care. Beneficiaries don’t have much disposable income, so asking them to pick up more of the bill is almost impossible.

That doesn’t mean that states haven’t tried. As I’ve discussed in past columns, a number are attempting to increase cost sharing. But this isn’t really a solution because it doesn’t change overall spending much at all.

Part of the challenge lies in the way Medicaid was set up in the first place. The federal government picks up between 50 percent and 100 percent (depending on the population and the per-person income) of whatever it costs to provide health care to a state’s population. Many, if not most, Republican plans would like to change that.

They are pushing for what many refer to as a block grant program. The federal government would give a set amount of money to each state for Medicaid; it would be up to the states to spend it however they like. These block grants could be set based on overall past state needs or based on the number of beneficiaries in the state, referred to as a “per capita” block grant. Some per-capita block grants function more like “ceilings” than outright grants, allowing the state to be paid at normal Medicaid rates, but with a maximum each state could get based on the per-capita calculation.