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Latest “Evidence” That Block-Granting Medicaid Would Help States? Hardly.

As we’ve noted, troubling proposals to convert Medicaid into a block grant are getting new attention, and a recent paper by Douglas Holtz-Eakin, president of the conservative policy group American Action Forum, cites a demonstration project that Rhode Island is operating under a federal waiver as evidence that states would fare quite well under a block grant.

Under its “global waiver,” Rhode Island accepted a cap on combined federal and state Medicaid spending from 2009-2013 in return for increased flexibility over certain Medicaid rules and the ability to qualify for new federal funds in some areas.  A closer look at the global waiver shows that Rhode Island’s experience is very different from what would happen to states under a block grant, as our report shows:

  • Rhode Island has received more federal funding with its global waiver than it would have received without it — the exact opposite of what would happen under a block grant. The global waiver has allowed Rhode Island to qualify for millions of dollars in federal reimbursements for previously state-funded costs.  Current block-grant proposals, in contrast, are designed to generate large and growing savings for the federal government over time, and the only way to do this is to give states less money than they would receive under the program’s current financing structure.  For example, the recent Ryan-Rivlin proposal would cut federal funding by $180 billion over the next ten years, according to the Congressional Budget Office.

  • The spending cap under the global waiver was set at an inflated level that the state never expected to reach anyway. The cap, set more than $1 billion (12 percent) above the state’s projection of overall Medicaid costs, hasn’t limited the state’s ability to obtain federal Medicaid funds.
  • Rhode Island can terminate its global waiver at any time. If the state concludes it is getting less federal money with the global waiver than without it, it can opt back into regular Medicaid.  Block-grant proposals, by contrast, are generally permanent, with no state option to revert back.

Moreover, while proponents claim that Rhode Island has gleaned significant savings from its global waiver, those savings mostly reflect the state’s receipt of federal Recovery Act funds, which are totally unrelated to the waiver.  Rhode Island has received $400 million in extra Medicaid funds under the Recovery Act and will receive about $470 million in total.  These extra funds have enabled the state to reduce its own Medicaid contributions.

In short, while the global waiver has been a sweet deal for Rhode Island in many ways, states would find a Medicaid block grant a much more sour experience.