TANF Block Grant Offers a Cautionary Tale for Medicaid

House Republicans plan to fast track their proposal to cut federal Medicaid funding by converting the program to a block grant or per capita cap and phasing out the Affordable Care Act’s Medicaid expansion, House Republican talking points released last week confirm. But lessons from the Temporary Assistance for Needy Families (TANF) block grant, which replaced the Aid to Families with Dependent Children (AFDC) entitlement program in 1996, show that changing Medicaid’s structure — whether to a block grant or per capita cap — would devastate children and their parents, seniors, people with disabilities, and pregnant women.

• Eroding funding levels would force hard choices. Inflation has eroded the value of federal TANF block grant funds, which have remained flat in nominal dollars, by one-third since 1996. Republican plans for Medicaid would allow a block grant or per beneficiary caps to grow over time. But the growth rate would be well below the expected growth rate of health care costs, which is higher than inflation. As a result, the value of federal Medicaid funds would fall similar to the TANF block grant. States would have to decide how to compensate for the lost federal funds, likely by cutting benefits, eligibility, or provider payments.
• A block grant would lock in inequitable state spending levels. Due to state decisions, funding per poor child varied widely across states under AFDC. The TANF block grant locked in these spending differences, so states at the bottom receive about $300 per poor child while states at the top get more than $2,500. Federal Medicaid spending per enrollee also varies across states — with some states spending twice as much as others per enrollee or five times as much as others per low-income person, according to the Urban Institute. A Medicaid block grant (or a per capita cap) would lock in these funding disparities by basing future federal funds on what states now spend, regardless of changes in a state’s demographics, economic situation, or other factors affecting its residents’ needs.
• Flexibility can allow states to shift federal funds away from serving poor families. TANF gave states unprecedented flexibility to use the funds — and by 2015, just half of all TANF funds went to support low-income working families or to connect them to work. States used the rest to fill budget holes and support other state programs. Proponents of changing Medicaid’s structure also promise states more flexibility. States choosing a block grant would only “be required to provide required services to the most vulnerable elderly and disabled individuals who are mandatory populations under current law,” the House Republican talking points say. The state would presumably make remaining coverage decisions — even whether to continue to cover children and pregnant women and what services they’d receive. When coupled with reduced federal funds, state flexibility to divert funding to other purposes would be devastating to low-income families’ access to health care.
• Block grants don’t respond automatically to increased need. Although the number of unemployed people doubled during the Great Recession, TANF caseloads rose by only 16 percent nationally as states restricted eligibility even as need was rising. In contrast during the recession, Medicaid — as an entitlement program — expanded to cover rising numbers of low-income uninsured people. As a block grant, Medicaid would no longer respond to rising need in that way. And while a per capita cap would allow federal funding to grow with rising enrollment, that wouldn’t be enough over time for states to keep up with rising health care costs. As a result, they could cut eligibility to keep spending within capped amounts.

The TANF block grant’s track record shows what’s at stake in the House Republicans’ proposal to radically overhaul Medicaid. States, health care providers, and beneficiaries should take note.