Medicaid May Turn into a Block Grant Program

Converting Medicaid from an entitlement program to block grants to states could help fulfill GOP campaign pledges to repeal Obamacare and trim federal spending, but leave bigger holes in state budgets.

Converting Medicaid from an entitlement program to block grants to states could help fulfill GOP campaign pledges to repeal Obamacare and trim federal spending, but leave bigger holes in state budgets.

The first shoe to fall on the repeal of Obamacare dropped over the weekend as surrogates of President Donald Trump said Medicaid would be converted to a block grant program. Depending on details, that could be a bombshell financial event for states such as Oregon.

The rationale for converting Medicaid to block grants is that states already run the program and block grants will give them total freedom in how to structure their programs for lower-income individuals, children, seniors and disabled people. Or as Trump adviser Kellyanne Conway put it, state block grants would ensure “those who are closest to the people in need will be administering the program.”

That glosses over some of the anticipated repercussions of the switchover. As The New York Times reports, “Since its creation in 1965 (as part of the War on Poverty). Medicaid has been an open-ended entitlement. If more people become eligible because of a recession, or if costs go up because of the use of expensive new medicines, states receive more federal money.” A bock grant puts the burden of distributing a fixed amount of money on a population that is shifting and growing.

A key feature of Obamacare was the entice states to expand eligibility of Medicaid. Thirty-two states, Including Oregon and Washington, accepted the offer. Nineteen states didn’t.  More than 20 million people gain health insurance coverage under Obamacare. Half of them were through Medicaid expansion.

Some 550,000 people in Oregon and Washington were added to the Medicaid rolls under the expansion, which the federal government subsidized 100 percent from 2014 to 2016, but prospectively will scale down after than. Declining federal funding is partially responsible for $800,000 of the projected 2017-2019 biennial Oregon budget hole. A switch to block grants could deepen the hole and force Oregon policymakers to make even uglier choices. The Ways and Means co-chairs’ no-new-revenue budget would require lopping 350,000 Oregonians off Medicaid.

While some governors like the idea of more flexibility in administering Medicaid – for example, to impose a work requirement to qualify for coverage or charge Medicaid recipients a premium, others dread the advent of block grants. In an odd sort of justice, states that didn’t expand their Medicaid eligibility and forfeited additional federal funding could be losers if the block grant amounts are set at what states receive now, including money to cover expansion. That could turn states that supported Trump into financial losers.

Some governors worry what choices states would make – willingly or at the point of a budget sword – to squeeze Medicaid coverage into a fixed federal block grant amount. Colorado Governor John Hickenlooper predicted “impossible choices” between older citizens with chronic health care problems and children with diabetes who need insulin.

Conway said state block grants were the best way to fight Medicaid fraud and abuse, but health care industry officials say it is more likely to result to destabilize even further the health care of lower-income Americans and their families.

Making Medicaid block grants the poster child for Obamacare repeal is related to congressional ability to make spending cuts in the budget reconciliation process with only 51 votes in the Senate. The GOP-controlled Congress won’t be able to replace substantive Obamacare’s substantive provisions without 60 votes in the Senate.

Congressional Republicans may view Medicaid block grants as part of a larger plan to trim spending on entitlement programs and curb federal spending.

An interesting side note, a federal judge on Monday blocked the $37 billion merger of health insurance giants Aetna and Humana on antitrust grounds. Reports indicated Aetna threatened the Obama administration to pull out of the individual health insurance market in as many as eight states unless the merger was approved.