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Block-Granting Medicaid Would Shift Costs to States

In a letter yesterday to the congressional “supercommittee” on deficit reduction, Republican governors stated their opposition to reducing federal Medicaid spending by shifting costs to states.  But that’s exactly what would happen under their proposal to turn Medicaid into a block grant.

The federal government now pays a fixed percentage of each state’s Medicaid costs, so when state costs go up, federal costs go up too, automatically.  Under a block grant, the federal government would pay only a fixed dollar amount of state costs, leaving the state responsible for the rest.  To ensure that a block grant produces substantial savings for the federal government, the block grant amounts provided to states would also be set at levels well below what would be provided under current law.

As I explained earlier this year, some states may mistakenly believe that proposals to convert Medicaid into a block grant or otherwise cap federal funding would somehow make their Medicaid costs more predictable and stable over time.  In reality, a block grant would substantially cut federal Medicaid funding for states, shift financial risks and costs to the states and force them to contribute more of their own funds or else cut back on Medicaid eligibility, benefits, and provider payments.  And since federal funding would no longer rise automatically in response to recessions or unanticipated medical costs, states would have to bear 100 percent of the added costs.

Block-granting may be attractive to some federal policymakers as a way to cut federal Medicaid costs.  But states would be left holding the bag when federal funding proved inadequate; they’d be the ones who would have to increase their own funding or make the tough decisions about which people to drop from coverage or which medical services to curtail.