Block Grants by Another Name: Still a Bad Idea

By Elizabeth Lower-Basch and Lena O'Rourke

Today the U.S. Centers on Medicare and Medicaid Services (CMS) released new guidance and a waiver application package that would allow states to convert a portion of their Medicaid programs to block grants. This proposal would undermine Medicaid, worsen health, put state budgets at risk, and deepen the next recession. Under a block grant, states would receive a capped allotment of federal funds in return for increased flexibility, including lifting statutory and regulatory requirements that protect patients.

The so-called “Healthy Adult Opportunity” proposal announced today is not consistent with federal law, which established Medicaid as a matching program. This proposal could put at risk state budgets and the health and health care of their low-income populations. The guidance incentivizes states to slash benefits, limit drug coverage, and cut payments to health care providers by allowing the states to keep a share of any savings. The proposal also opens the door for states to fast-track waivers for a wide range of other provisions, including the work-reporting requirements that have been consistently rejected by courts.

The CMS guidance would allow states that expanded Medicaid under the Affordable Care Act to seek block grants for serving some or all of the adults in the expansion population, including many parents with low incomes. When health care spending exceeds the federal allotment for any reason, such as a recession, a new epidemic, or the adoption of a new treatment, states receiving block grant will be forced to increase their own spending or make cuts. That could include lowering provider payments, reducing eligibility, eliminating certain benefits, or creating new administrative hassles designed to reduce enrollment in Medicaid.

The lesson of other federal block grant programs is very clear: there is no way to avoid harsh tradeoffs. When block grants fall short of meeting need, it is people who bear the burden. When the federal funding runs out, states eliminate benefits, lower eligibility thresholds or enact other draconian cost containment policies to keep state spending in check. In Medicaid, it means that comprehensive health care would move further out of reach for many residents who have no other options for coverage. Residents would no longer be able to get the care they need or be forced to forgo or delay needed services due to cost—leading to worse health care outcomes and a sicker state population.

Congressional proposals to block grant Medicaid have been defeated repeatedly because it’s well documented that block grants are fiscally risky for states, lead to cuts in eligibility and benefits, and prevent states from responding to economic downturns. The American public has been vocal in its support of maintaining and strengthening Medicaid. In releasing this guidance, CMS is attempting to implement policy that failed to pass in Congress and is counter to both the law and public opinion.

Years of experience show that block grants do not work. Many federal programs are already funded through federal block grants including Temporary Assistance for Needy Families (TANF). TANF block grant funding has dramatically eroded over time and has not been responsive to poverty or need; the core block grant has not been adjusted for inflation since it was created over 20 years ago, and the value has eroded by 35 percent in real dollars. TANF is not responsive to population growth or changes in the economy. This proposal also echoes the TANF experience, in that many of the most punitive aspects of the program were first implemented under waiver authority.

CLASP strongly opposes any steps to block grant state Medicaid programs and do an end run around Congress and the regulatory process. CMS’s proposal is almost certain to be challenged in court. In recognition of the widespread popularity and support for Medicaid, CMS claims its proposal would strengthen and protect the program. This is false. No state should take this toxic bargain.