Podcast: Radical Medicaid Proposals Could Add Millions to Ranks of Uninsured

March 24, 2011

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In the intensifying debate over cutting federal spending, we’re hearing more and more about troubling proposals to change Medicaid from a program with open-ended federal financing to a program with capped funding.  I’m Shannon Spillane, and joining me by phone is Edwin Park, Vice President for Health Policy here at the Center, to discuss the growing concern.

1.  Edwin, there’s lots of talk about converting Medicaid into a block grant in order to cap how much money the federal government spends on it. What would this mean?

Converting Medicaid into a block grant is a truly radical idea which would fundamentally change the nature of the program by dramatically changing the way that the federal government finances Medicaid.

A block grant would also dismantle the current rules for Medicaid, like who gets coverage and what benefits they receive.

In the end, we’ll see millions more low-income people who won’t have insurance, and won’t get the medical care that they need.

2.  Can you tell us a little more about how Medicaid financing would change under a block grant?

Well, right now, the federal government covers a fixed percentage of each state’s Medicaid costs, between half and three-quarters, depending on the state.  When state costs go up, federal funding automatically goes up with them, and when states’ costs go down, federal funding goes down with them as well.

Now that would all change with a block grant.  A state would get only a fixed dollar amount in federal funding, no matter what the state’s Medicaid costs are. So if a state ran out of federal funding, it would be responsible to fully cover all additional costs.

3.  Well, why would we expect that federal Medicaid funding under a block grant would run out or not be sufficient?

Well, take the current recession.  The number of people on Medicaid rose by six million between December 2007 and December 2009, as people lost their jobs and became eligible.

The federal government automatically kicked in more federal funds to help cover these higher costs.  But under a block grant, the state would have had to absorb all these recession-related costs once they’ve run out of their federal funding.

And there are other cost increases that are hard to predict. Imagine there’s an epidemic of some kind, or imagine we see a medical breakthrough, like a new drug or treatment for cancer or diabetes.  Either one would really drive up state Medicaid costs.  That actually happened with HIV/AIDS in the 1990s. Now if something like that happened again, under a block grant, the state would have to pay for all of it.

One final critical point:  The whole point behind a block grant is to cut federal spending.  Block grant amounts would be set well below what the federal government expects to provide under the current financing system, and the cuts would get larger over time.  For example, one proposal would cut federal funding by $180 billion over the next ten years.  So states would see their federal funding cut deeper and deeper every year, and they’ll begin to run out of federal Medicaid funds.

4.  How would that, in turn, affect individuals and families?

States that are facing big federal funding shortfalls under a block grant will have to make up for them by providing more state dollars or, more likely, drastically cutting benefits or eligibility for poor families, children, seniors, people with disabilities, just when people need them most, like during a recession.

Right now, states are required to let anyone who is eligible enroll.  They also have to cover certain groups of people and benefits, and can choose to cover others.  With a block grant, policymakers are likely to either partly or fully dismantle these rules, leaving those who most need these benefits ineligible or unprotected.

That would mean:

  • A family that loses a job and their health insurance during a recession, becomes eligible for Medicaid, won’t be able to enroll, even if their child has a chronic illness and needs care immediately.
  • Some seniors and people with disabilities who have long-term care needs may no longer have their nursing home costs picked up by Medicaid because it may not be a required benefit anymore.

5.  The nation is coming out of a deep recession. Aren’t health care costs contributing to the federal deficit? And shouldn’t we be capping spending wherever possible to rein in national debt?

Keeping costs down is obviously very important, and health care costs are contributing to the debt, so slowing their growth is essential to reducing federal deficits and debt.

Medicaid block grant proposals focus on cutting federal Medicaid spending in isolation, instead of addressing the growth of costs throughout the entirety of the health care system.  Moreover, it’s important to remember that Medicaid is cost-effective. Its costs have risen slower than private insurance premiums and overall health care costs over the last decade.  And once you take into account health differences, Medicaid costs substantially less per person than does private coverage.

As we discussed, the block grant approach shifts costs to states, low-income beneficiaries and health care providers, creating a two-tier health system in which low-income people receive significantly less adequate care than other Americans.

So proposals to reduce health care spending should focus on lowering health care costs system-wide, rather than solely in Medicaid.

Thank you for joining me, Edwin.

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