Arizona and Rhode Island have come up in debates over converting Medicaid to a block grant because both states’ Medicaid programs operate under federal waivers that provide some added flexibility. But these states’ experiences tell us nothing about the likely impact of a block grant, for a simple reason: neither state has faced the sharp drop in federal Medicaid funding that a block grant would almost certainly entail.
As we’ve explained, Medicaid block-grant proposals aim to save the federal government money by giving states much less funding each year than they would get under the current system, with the gap growing over time. The budget that the House passed earlier this year, for example, would cut federal Medicaid funding by 34 percent by 2022 (on top of repealing health reform’s Medicaid expansion).
Given the large and growing funding shortfalls that states would face under a block grant, they would either have to contribute more state funding (by raising taxes or cutting other programs substantially) or, more likely, use the added flexibility that a block grant would give them to cut eligibility, benefits, and/or provider reimbursements. Those cuts could add millions to the ranks of uninsured and underinsured Americans, such as by raising co-payments and premiums to unaffordable levels or by cutting Medicaid’s already low reimbursements to the point where many providers leave the program.