- The use of block grants for the Medicaid program would lead to both a drastic reduction in funding immediately and over the long term, according to a new report from the Commonwealth Fund. Medicaid covers about 65 million Americans, or about 20% of the entire population.
- The report, which was authored by executives from Manatt Health, had a grim conclusion: The funding caps created by block grants "would require states to cut coverage, reduce benefits, increase cost-sharing, lower provider payment rates, or otherwise reduce Medicaid expenditures as compared to current law spending levels."
- Moreover, if states wanted to exit a block grant program, they likely would face pressure from CMS to remain in the program, the researchers said. It would also take many months for a withdrawal to become official.
For years, block grants have been evangelized by conservative politicians as a way for states to experiment with the way that entitlement benefits are parceled out. However, the Trump administration and CMS have been the first to actually embrace it as a policy.
The Healthy Adult Opportunity initiative allows demonstration projects on the use of block grants to move forward. That represents a deviation from most Medicaid demonstration projects, which are typically used to test the efficacy of a particular kind of care system (outpatient clinics as a primary care venue, for example) than the way the system itself is financed.
A few states have demonstrated eagerness to participate. The governors of Oklahoma and Arkansas said they would take steps to join the initiative. And Tennessee applied for a block grant waiver last September, months before CMS announced it would begin accepting waiver applications.
In exchange for block grants, states would have a much wider latitude in administering their Medicaid programs. For example, they could curb payments to federally qualified health centers, use a closed drug formulary while still having access to federal rebates on drugs and raise premiums without federal review.
The Commonwealth Fund report was unambiguous in declaring that block granting Medicaid would do anything other than slash the federal government's funding of the program. It projected that a nationwide implementation of Medicaid block grants would immediately cut federal funding for the program by 10.5%, or $110.4 billion per year. Meanwhile, state contributions to Medicaid funding would drop anywhere from 6.5% to as much as 24.1% per year.
Those numbers only represent the baseline changes that block granting Medicaid would bring for states. For example, if medical inflation grows at an annual rate of 2.25% instead of 3%, spending would drop 13% between 2021 and 2025. If per enrollee spending growth rises one percentage point above projections during that time period, spending would drop 13.9%. If Medicaid enrollment grows 3.6% per year (the average between 1998 and 2013), spending would drop 19.7%. And if states decide to spend only 80% of their caps for the block grants, spending would drop by 27.6% between 2021 and 2025.
"The cuts grow over time, and they deepen still further if states pursue shared savings or if healthcare costs or enrollment grow at rates that, while higher than projected, are well within recent historical experience," the report concluded. "And under all scenarios, the financial benefits of spending cuts accrue overwhelmingly to the federal government, not states." As a result, CMS would likely pressure any state that wished to exit a block grant program to remain in place, the authors said.
However, it's unlikely that Medicaid will become block-granted throughout the U.S. anytime soon, as it is almost certain to face legal challenges in the coming months and years.