CHIP Success Is No Reason to Convert Much of Medicaid to Block Grants

In proposing to convert much of Medicaid into two block grants, Senate Budget Committee Chairman Mike Enzi’s budget plan claims the Medicaid block grants would follow the successful Children’s Health Insurance Program (CHIP) model.  As we’ve explained, however, Medicaid under block grants would operate far differently than CHIP and would lead to damaging cuts to states, beneficiaries, and health care providers.

CHIP is funded through a block grant structure, yet it’s helped reduce the share of children without health coverage to a historic low.  That’s because Congress has taken extraordinary steps to ensure that states have had adequate federal funding to sustain (and expand) their CHIP programs, allowing them to overcome CHIP’s otherwise flawed capped funding structure.  In contrast, Medicaid block grants like those proposed by Chairman Enzi are explicitly designed to reduce federal funding well below current levels (and thus below states’ funding needs) in order to generate large savings.

Here are some of the key findings from our earlier analysis:

• Over CHIP’s original ten-year authorization, overall federal funding for state CHIP programs was more than adequate to meet states’ funding needs. In contrast, Chairman Enzi’s plan would cut Medicaid spending by roughly $400 billion over ten years, on top of repealing health reform’s expansion of Medicaid coverage to low-income adults.
• In CHIP, if a state doesn’t use its full amount of federal funding, the funds are redistributed to other states. Even if the Medicaid block grant envisioned under the Enzi plan allowed for redistribution of unspent funds — it doesn’t — there would be little or no unspent funds to redistribute because of the deep federal funding cuts relative to the funding states would receive under current law.
• When redistributed CHIP funds fell short of closing states’ federal CHIP funding gaps, Congress stepped in between 2005-2009 to provide additional CHIP funding. As a result, states could operate their CHIP programs as though they had uncapped federal funding, as under Medicaid today.  The combination of states’ annual allotments, redistributed funds, and supplemental federal funding has given states all of the federal CHIP funding they’ve needed.
• When President Obama and Congress extended CHIP funding for five years in 2009 (and further through 2015 as part of health reform), they set funding levels that both accommodated health care cost inflation and child population growth and allowed for further growth from enrolling a higher share of children eligible for the program. That’s why the Congressional Budget Office has estimated that no state would face shortfalls in federal CHIP funding.

CHIP has overcome the serious shortcomings of its financing structure because it differs substantially from typical block grants.  Under Chairman Enzi’s plan, the Medicaid block grants would not mirror CHIP’s success but instead likely result in states significantly cutting eligibility, benefits, and payments to health care providers.  Substantial numbers of low-income Medicaid beneficiaries would end up uninsured or underinsured.