Medicaid Block Grants: It is Never as Good as it Sounds

This post was written by Rick Jacobs, an expert in school-based Medicaid and a Principal at Fairbanks LLC.

The concept of a block grant for Medicaid is far from a new idea as block grants have been used by the federal government to reduce federal expenditures and shift costs to the states for decades. 

In the late sixties and early seventies, the Nixon Administration implemented block grants for Community Development and certain housing programs.  President Reagan proposed a Medicaid block grant in 1981, which Congress rejected, as part of a broad series of entitlement program cuts and succeeded in cutting Medicaid funding until 1984. President Clinton vetoed Medicaid block grant legislation that was passed by the Congress in 1995.  George W. Bush proposed Medicaid block grants as well as sweeping cuts in Medicaid funding for schools, hospitals and other health care providers. The proposals currently being considered in Congress are building on the 2015 ACA repeal and Medicaid Block Grant sponsored by Sen. Burr and Cong. Upton as well as Speaker Ryan’s ACA repeal and Medicaid Block Grant proposal that passed the House in January 2016. The likelihood of Congress passing Medicaid block grant legislation this session and the President signing it is near certain.

The concept of a block grant has appeal for intergovernmental stakeholders that mask the undesired consequences that result from them. A block grant in simplest terms is a lump sum allotment from the federal government to the states. Alternatively, it could also be a per capita cap to consider population differences, but is effectively the same concept. The benefits to the federal government of a block grant are both financial and programmatic. The block grant limits the amount of federal funds that are appropriated providing greater predictability of budget requirements while concealing the effects of cuts in appropriation. The programmatic benefit of a block grant to the federal government is that it effectively shifts all accountability for program management to the states while retaining regulatory and funding oversight. The purported benefit to the states is that they too gain more predictable funding and are able to exercise more local control over the program with less regulatory oversight from the federal government. In practice, it rarely works out that way.

The fallacy is that:

1. A block grant is a concealed funding cut
2. A block grant does not account for changes in program demands
3. A block grant effectively ignores that the underlying services are mandated and change with social needs
4. A block grant shifts costs to the states exacerbating the “hidden budget cut” that is the result of a fixed allotment
5. A block grant is not appropriate for entitlement programs such as Medicaid, especially in schools where services are mandated regardless of the resources available to pay for them
6. The  entitlement to services and the mandates to provide those services does not end with a block grant and is completely inappropriate for programs that are integrated in both mandating services and entitlement funding such as Title 19 and IDEA.

It is important to note that if the federal funds are reduced by Congress, it does not reduce the non-discretionary expenditures being made on behalf of the Medicaid program, but would merely increase the amount of the unfunded mandate. Furthermore, since IDEA is an entitlement program and the integration of IDEA and Medicaid is predicated on both programs being entitlements, a block grant will reduce the funding for services provided but the entitlement to provide the services will remain. This will create a devastating and escalating shortfall for states as they must provide services pursuant to an open-ended entitlement, but must rely on a fixed and decreasing amount of funding to support those mandates. 

Block grants (or even per capita caps) are not bad policy on their face and have valid and appropriate applications in some situations. The use of a Medicaid block grant would disrupt and damage a program that has met the health care needs of children with disabilities for decades and is premised on the mandate of schools providing services to children without regard to funding. The devastating effects of block grants in general would be intensified for schools who cannot turn away students who require services or ignore their health care needs. Funding for mandated services would be reduced and would put children at risk and increase costs to state and local taxpayers as well as increase costly litigation from parents and other stakeholders. 

A Medicaid block grant is bad policy, bad for children and bad for state and local taxpayers.