GOP Governors Seek Medicaid Block Grants That Would Destroy Jobs, Undermine Health Care Reform

February 28, 2011 4:49 pm ET

Coming out of the National Governors Association meeting this weekend, several Republican governors have a new talking point — they want federal block grants to fund Medicaid. Governors like Rick Scott (R-FL), Scott Walker (R-WI) and Haley Barbour (R-MS) are touting block grants — capped allotments of money — as the solution to the lack of flexibility in their state Medicaid programs. However, the Center on Budget and Policy Priorities (CBPP) shows that the increased flexibility would come with financial risks and costs to the states, as well as cuts to Medicaid eligibility and benefits. Additionally, providing states with block grants for Medicaid would fundamentally change how the program is funded and would ultimately undermine the Affordable Care Act.

Republican Governors Seeking Medicaid Block Grants So They Have More Flexibility

Republican Governors "Embraced The Idea" Of Medicaid Block Grants As A Way To Give States Flexibility. The Hill reported: "Not buying the flexibility argument [from HHS], Republican governors during the NGA meeting embraced the idea of providing Medicaid block grants that would allow the states to shape Medicaid programs." [The Hill, 2/27/11]

The Hill: Republican Governors Want Block Grants So They "Tinker With the Safety Net For The Poor In A Responsible Way." From The Hill:

Republican governors, asking for greater flexibility to design Medicaid programs as their states face massive budget gaps, are pushing for the federal government to provide Medicaid block grants.

The governors, upset with the new healthcare reform law's requirement for states to maintain Medicaid eligibility standards until 2014, said block grants would provide states with the flexibility to tinker with the safety net for the poor in a responsible way.

[The Hill, 2/27/11]

Gov. Scott Wants Block Grants To Fund Medicaid So Florida Has Greater Flexibility On How To Spend The Money. Speaking on CNN's State of the Union with Candy Crowley, Gov. Rick Scott (R-FL) said: "Now all of us know that Medicaid is a problem for our states. So we're going to a better job of managing our Medicaid population and our Medicaid program. We would like the federal government to just give us a block grant 'cause I could just spend that money way better without all those strings attached." [CNN, State of the Union with Candy Crowley, 2/27/11]

  • Gov. Scott Says People Should Trust Him To "Cover The Right People" With Medicaid Block Grant. From The Hill: "'You give me a block grant, let me do whatever I want, and I will cover the right people,' Florida Gov. Rick Scott (R) told a National Governors Association's meeting in Washington Sunday morning. 'If I don't, I won't get reelected.'" [The Hill, 2/27/11]

Gov. Walker Wants Block Grants So States "Can Make Adaptations...In Way We See Best Fit." According to The Hill, speaking at the National Governors Association meeting by phone, Gov. Scott Walker (R-WI) said, "I'd love to have a block grant so we can make adaptations state by state the in way we see best fit." [The Hill, 2/27/11]

Gov. Barbour "Would Take A Capped Blocked Grant In Return For True Flexibility." From Politico: "'For myself, I would take a capped blocked grant in return for true flexibility to run the program,' Mississippi Gov. Haley Barbour told reporters. 'We could use money more widely.'" [Politico, 2/27/11]

Gov. Barbour: "Many Governors" Would Take A Cap On Growth For A Medicaid Block Grant With "Total Flexibility." From the New York Times: "Gov. Haley Barbour of Mississippi, a Republican, said: 'If we could get Medicaid as a block grant with total flexibility to run the program as we see fit, I would be willing to take a cap on growth of 2 percent a year. Many governors feel that way.'" [New York Times, 2/26/11]

Block Grants Fundamentally Change How Medicaid Is Funded

Current Medicaid Funding Is Provided On An Open-Ended Basis From The Federal Government. Currently, Medicaid is funded by both the federal government and the individual states.  From CBPP: "Medicaid is jointly financed, with the federal government generally picking up between 50 percent and 75 percent of each state's Medicaid costs (57 percent, on average) and the state responsible for the remainder. Federal Medicaid financing is open-ended:  if state Medicaid expenditures increase, the federal government shares in the increased costs; if state Medicaid expenditures decline, the federal government shares in the savings." [Center on Budget and Policy Priorities, 2/23/11, emphasis added]

Medicaid Block Grants Would Cap Federal Funding. From CBPP: "Under proposals to convert Medicaid to a block grant or otherwise cap federal funding, the federal government would no longer pay a fixed percentage of states' Medicaid costs.  Instead, it would provide each state with a fixed dollar amount, with states responsible for all remaining Medicaid costs. Block-grant proposals vary on how this fixed amount would be determined, but typically a national Medicaid spending allotment would be set each year and a formula would determine each state's share of that allotment...These national or state allotments would be adjusted annually in order to reflect factors like growth in population, economic growth, or inflation; based on past block grant proposals, such adjustments likely would be only partial adjustments." [Center on Budget and Policy Priorities, 2/23/11, emphasis added]

Block Grant Flexibility Would Mean Cuts In Eligibility, Benefits And Provider Payments

Block Grant Financing Would Mean Restricting Medicaid Enrollment, Eligibility And Benefits. From CBPP:

As a state's block-grant amount became increasingly inadequate over time, states would likely make up for the shortfall, at least in part, by exercising the greater flexibility they would be given to restrict enrollment, eligibility, and benefits. These cuts would likely become deepest at times when individuals and families most need Medicaid, such as during a recession.

Such cuts could be devastating for tens of millions of low-income Medicaid beneficiaries. For example, states might be given flexibility to cap Medicaid enrollment, leaving uninsured a substantial number of people whose low incomes would otherwise qualify them for Medicaid. Many current beneficiaries could also be made ineligible and end up uninsured, as states narrow coverage.

[Center on Budget and Policy Priorities, 1/6/11, emphasis added, italics original]

Block Grant Financing Would Also Lead To Reducing Provider Rates. From CBPP: "States facing inadequate block grant funding would also likely have to further scale back provider rates.  These rate reductions likely would apply not only to hospitals, nursing homes, physicians, and pharmacies in Medicaid fee-for-service but also to managed care plans that currently serve low-income children and their parents.  That, in turn, could cause some providers and plans to withdraw from Medicaid, threatening beneficiaries' access to needed care, particularly in communities — such as rural areas — that already are underserved.  It also would place greater pressure on providers such as community health care centers and safety-net hospitals, which rely on Medicaid funding but which would face increased patient needs because of increases in the numbers of uninsured individuals if Medicaid enrollment were capped and eligibility restricted under a block grant." [Center on Budget and Policy Priorities, 2/23/11]

Block Grants Hurt States During Economic Downturns

Block Grant Financing Would Cap Funding And Prevent States From Responding To The Increased Need For Medicaid During Economic Downturns. From CBPP:

During a recession, when people lose their jobs and access to employer-sponsored insurance, many become eligible for and enroll in Medicaid.  According to modeling by the Urban Institute, a one percentage-point increase in the unemployment rate results in a 1 million person increase in Medicaid enrollment among children and non-elderly adults. [...]

Even under Medicaid's current financing structure, states have had great difficulty absorbing the significantly higher Medicaid enrollment-related costs that have resulted from the current economic downturn, because those higher costs have coincided with plummeting state tax revenues and large budget shortfalls.  (This has been true even though Congress temporarily increased the federal share of state Medicaid costs.)  Recessions would pose dramatically greater risks to states under a block grant: their capped funding would be far less than the amount of funding they would receive under the existing financing system.

[Center on Budget and Policy Priorities, 2/23/11, emphasis added, italics original]

Block Grants Would Cost Jobs

Center for American Progress: Block Grant Funding Of Medicaid Would Cost 3 Million Jobs. From the Center for American Progress:

The conservative proposal to turn Medicaid into a block-grant program would not only be detrimental to the health of millions of Americans but also cost three million jobs-jeopardizing our economic recovery. [...]

The nonpartisan Congressional Budget Office estimates that Rep. Ryan's proposal would cut $180 billion from federal Medicaid spending from 2013 to 2020. This proposal is shortsighted from an economic as well as a health-care perspective. As CAP Visiting Fellow Leslie Russell noted in an earlier column:

Medicaid is one of the most effective and efficient forms of economic stimulus. Every dollar spent generates new dollars that pass from one person to another in successive rounds of spending. This multiplier effect means that Medicaid spending provides a greater boost to the state economy than the value of the services purchased directly by the Medicaid program.

Using data from Families USA, Russell estimated that every $1 million in federal Medicaid spending results in 17.1 new jobs. Cutting federal spending on Medicaid, then, means cutting jobs. If we apply the same formula to Ryan's Medicaid block grant proposal, it would mean a loss of nearly 3.1 million jobs from 2013 to 2020. Here's the math:

$180,000 million x 17.1 jobs = 3,078,000

[Center for American Progress, 2/28/11, emphasis added]

Block Grants Would Undercut The Affordable Care Act

Medicaid Expansion Under The Affordable Care Act "Is Fundamentally Incompatible With A Block-Grant Structure." From CBPP:

As noted, under the health reform law, state Medicaid programs will be required to cover all non-elderly individuals up to 133 percent of the poverty line ($29,400 for a family of four) starting in 2014. The federal government will pick up the vast majority of states' costs for this coverage expansion — 96 percent of those costs over the next ten years, according to CBO estimates.  As a result of this expansion, CBO expects that by 2019, some 16 million more people will be enrolled in Medicaid than would have been the case under prior law but state costs will be only 1.25 percent higher than they would be in the absence of health reform. The Medicaid expansion is one of the main reasons why the health reform law will reduce the number of uninsured people by an estimated 32 million by 2019, according to CBO.

Since federal Medicaid funding would be lower under a block grant than under the current funding structure, the federal government would pay for substantially less of the cost of the health reform law's Medicaid expansion, making it far less viable. In fact, because block-grant proposals typically give states much greater flexibility regarding Medicaid eligibility, it is difficult to see how states could still be required to institute the Medicaid expansion. Even if they were so required, far fewer newly eligible individuals and families would actually obtain coverage if a block-grant proposal also allowed states to cap Medicaid enrollment.

In addition, facing inadequate federal funding, state Medicaid programs that significantly scaled back their provider reimbursement rates would likely face the withdrawal of more health care providers from the program. Yet greater provider participation, particularly among primary care providers, will be needed to serve the millions of additional beneficiaries who will begin enrolling in 2014.

In short, the Medicaid expansion — one of the central coverage elements of the health reform law — is fundamentally incompatible with a block-grant structure. If Medicaid were converted to a block grant, the coverage expansion would almost certainly have to be scrapped. Millions more uninsured people, particularly those with very low incomes, would remain without coverage. This, in turn, would threaten the health reform law's ability to improve health care coverage and quality.

[Center on Budget and Policy Priorities, 1/6/11, footnotes deleted for clarity, emphasis added]

Democratic Governors Know That Block Grants Could Hurt States

Gov. Markell: Block Grants Would "Leav[e] States With One Option - Cutting Services At A Time When They're Most Needed." The Hill reported:

Democrats, however, expressed skepticism over a block grant program. Delaware Gov. Jack Markell (D) said it would limit access to healthcare in a time of economic crisis.

"Funding would remain level as demand's increasing, leavings states with one option - cutting services at a time when they're most needed," Markell said.

[The Hill, 2/27/11]

Gov. Malloy: Block Grants "Lessen The Amount Of Money That Flows To States." On CNN's State of the Union with Candy Crowley, Gov. Dan Malloy (D-CT) said, "Block grants from the federal government have largely been used as an excuse to lessen the amount of money that flows to states." [CNN, State of the Union with Candy Crowley, 2/27/11]