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Could Republicans wreck Medicaid?

Block grants would encourage states to enroll fewer people – and cut or limit services for millions of marginalized, underserved Americans

Every politician knows that you can’t touch Medicare without first gaining the permission of America’s seniors. Yet Republicans now seek to upend the basic structure of Medicaid, with surprisingly little discussion, let alone any effort to determine how low-income adults and children, the aged, and the disabled feel about these critical changes to their health coverage.

This battle doesn’t get the political attention it deserves because the details become boring and technical, and because the design of Medicaid apparently affects other people – by which we mean poor people – who presumably should be grateful for what they get.

Speaker of the House Paul Ryan and others would convert Medicaid to a block grant. Before inauguration, President-elect Trump announced his support for this approach. Rep. Tom Price, the Trump Administration’s nominee to run the Department of Health and Human Services, reiterated that position in his confirmation hearings.

On last Sunday’s talk shows, White House counselor Kellyanne Conway suggested that converting Medicaid to a block grant would ensure that “those who are closest to the people in need will be administering” the program.

As with everything in Trump-era health policy, we haven’t seen the fine print. We don’t know how the block grants would be financed, how they would impact states or low-income citizens. The details matter, and they won’t be good.

Block grants aren’t a ‘fresh idea’

Block grants sound like some green-eyeshade technical budget adjustment. In fact, they are the pet project of severe fiscal conservatives who seek to retrench social insurance in America.

Right now, Medicaid provides an important, easily overlooked guarantee to both needy Americans and to the states in which these needy people live. People who qualify for Medicaid are entitled to a reasonable package of benefits. States are similarly entitled to federal help to share the cost of this coverage. State Medicaid programs vary. Medicaid in Indiana or Ohio looks quite different from Massachusetts Medicaid. These guarantees to the states and to needy individuals are still operative across the country.

Block grants are designed to break one or both of these guarantees. In a way, President Trump, Speaker Ryan, and their allies seek to turn Medicaid into a de facto voucher program, under which the financial risks of increasing medical expenditures are shifted from the federal government onto the states or to individual recipients.

This is not some spat over Obamacare. This fight started long before the Obama presidency and involves millions of Medicaid recipients who have little to do with ACA. Almost two-thirds of Medicaid spending goes to care for seniors and for the disabled. And much of the remaining third finances care for low-income people who do not qualify on the basis of disability, but in fact have costly illnesses, injuries, or chronic conditions. That’s where the money is. Virtually by definition, turning Medicaid into a block grant would reduce services to these groups, and would likely impose heavy burdens on state governments.

I can’t claim to be unbiased. My brother-in-law Vincent lives with a serious intellectual disability and he has other serious health needs. He has been hospitalized many times over the years  My wife and I have been his guardians – and Medicaid has rescued our family from severe financial distress.

This isn’t always easy. For the past two years, Illinois Republicans and Democrats have been stuck in partisan gridlock. We’re into our second year without a state budget. Although Illinois Medicaid is quite troubled, it’s the only program that basically works right now. It functions because Illinois receives adequate federal funds, and because Illinois is accountable to the federal government for what it does.

Almost everyone in Illinois – from our Republican governor on down – understands that a block grant would be catastrophic. One of the worst impacts of block grants would be to worsen the Darwinian struggle among recipient groups competing for a fixed pot of scarce resources.

If the Medicaid pie were fixed, my own family might fare pretty well. Individuals with intellectual disabilities are an appealing constituency. Their families are well organized and span the income and educational spectrum. Less cute and cuddly individuals – such as those with severe mental or behavioral health disorders – would probably fare worse.

One approach: a fixed pot of money for each state

The first type of block grant would provide each state with a fixed pot of money that the state has broad – though not complete – discretion to spend as it sees fit. This overall block grant is the most draconian approach. It imposes huge risks on states during recessions that typically increase service needs precisely at the moment state budgets are under the greatest stress.

This approach also provides the clearest incentives for states to cut and limit services. A state can do this openly, or it can follow many quieter paths to reach the same goal. One can require Medicaid applicants to show up to state offices in inconvenient places at limited hours. One can impose ostensibly reasonable paperwork requirements that scare away poor people. One can impose long waits. And so on.

States used all of these tactics in the wake of the 1996 welfare reform. That law converted traditional cash welfare – Aid to Families with Dependent Children (AFDC) – to a new block-granted program with the subtle title: Temporary Assistance to Needy Families (TANF).

States responded by cutting cash benefits, which often max out at less than $200/month for a family of three. States also shifted the TANF block grants away from cash assistance into other programs they had previously financed out of other funds. The number of welfare recipients plummeted.

This didn’t seem like such a problem in the booming late Clinton years. But later, when hard times really hit, states failed to adequately respond. During the Great Recession, TANF provided assistance to a historically low fraction of poor children who really needed the help.

Approach two: a fixed amount per recipient

The second type of block grant provides each state with a fixed amount per eligible person or per program recipient. This structure is slightly better. It provides greater protection to states that experience economic downturns. It can be designed to provide less brutal incentives to chase recipients away. This approach still provides strong incentives to impose service cuts.

These aren’t accidental features. Proponents want to enact block grants because they want to cut programs. They want to shift financial risk from the federal government onto patients, families, states, and local governments. Medicaid block grants would encourage states to enroll fewer people, and to do less for those who actually sign up.

Suppose, for example, that your state is considering providing adult dental services to people with disabilities who receive traditional Medicaid. States are not currently required to provide such services. But if they do, the federal government will pay at least half the cost. (The federal government will pay 90 percent of the costs of services provided under ACA’s Medicaid expansion. Yeah, it’s complicated.)

How much the federal government pays depends on a formula called the Federal Medical Assistance Percentage (FMAP) – which favors poorer states. Here in Illinois, the federal government splits things 50-50. In Michigan, the federal government pays 65 percent. In poorer states, it pays even more. If the federal government is paying more than half of the cost, states enjoy pretty clear incentives to expand this service.

How block grants change incentives

Now consider how incentives change under a block grant. Whatever fixed sum the feds are paying, the state would still cover 100 percent of any additional costs. Obviously, a state would take a harder look before covering some new optional service.

Since Medicaid covers some of the most politically marginalized, underserved people in America, this is a real problem. Indeed Medicaid may be the only part of our health care financing system that needs to spend more on expensive care.

Medicaid already limits access by underpaying hospitals and medical providers – who are then understandably reluctant to treat Medicaid patients. Particularly during hard times, states already ration services and impose punishing Medicaid cuts.

A spate of 2010 stories documented how South Carolina reduced its weekly Meals on Wheels to the disabled from 14 to ten meals every week. Arizona caused a national scandal by denying coverage for medically indicated organ transplants to reduce its Medicaid budget. The state was forced to reverse this rationing policy, but only after at least two patients died.

The irony is palpable. ACA never included death panels, whatever Sarah Palin and Michelle Bachmann may have claimed. Conservative states truly did enact death panels by setting stringent caps on lifesaving treatments. A block grant would make this much worse.

Excuses to cut – and plausible deniability

One insidious feature of block grants is the plausible deniability they afford to states and the federal government when services are cut.

Suppose a state is being pressed by Medicaid recipients and their families to cover adult dental care. Under a block grant, state officials can sorrowfully explain that there are many competing needs, and the federal government won’t share any of the additional costs. Federal officials, for their part, can say that they have no comment: States can spend their block grant any way they wish. There’s no clear home address or accountability for service cuts.

Block grants are also a device whereby Congress can squeeze Medicaid by allowing the block grant to grow more slowly than the actual costs of care.

That’s exactly what Speaker Ryan’s previous block grant proposals sought to do. Over time, he would have cut Medicaid by about one-third relative to current law. Such huge reductions could never be openly defended if Ryan needed to identify specific service cuts. The beauty of block grants is that he would never have to.

Because public benefit recipients aren’t stupid, block grants aren’t proposed for programs that serve powerful constituencies. Medicare is a far more frightening drain on federal coffers than Medicaid is. No Washington politician suggests block-granting Medicare. No one laments the “one size fits all” national Medicare funding or suggests that Medicare should be financed and operated by state governments closer to the recipients who need it. It would be career-ending for any politician to ask middle-class retirees to entrust their care to the full faith and credit of the state of Illinois.

Republican governors to the rescue?

Congressional Republicans can probably block grant Medicaid through the filibuster-proof reconciliation process. Democrats will be hard pressed to stop them. It’s hard to mobilize a grassroots campaign on such arcane matters.

One fact works in Democrats’ favor. Republican governors control 32 state houses. Most of these governors quietly or loudly oppose the health policies pursued by their own party in Washington. Many of these governors have invested billions of dollars in Medicaid expansion. They have negotiated workable arrangements with the Obama administration. They hope the Trump administration will let them do some things the Obama administration would not. They don’t want that money taken away or to see six years of hard work to go for naught.

These governors are far more popular than President-elect Trump in their own home states. They have budgets to balance, hospitals and other safety-net providers to support, hundreds of thousands of real people they need to help.

Big winners … and big losers

The nuts and bolts of block grants create big winners – and losers, too. These conflicts were manageable for cash welfare, a small and unpopular program. It’s a huge concern in Medicaid, which is about 20 times TANF’s size and which touches a myriad of powerful interests.

Do block grants bake in the current number of recipients, generosity, and payment schedules across states? This approach would advantage the biggest spenders like New York, alongside states most eager to expand Medicaid. It’s hard to see Republicans agreeing to that. Maybe they’ll provide a uniform amount to each state or to each recipient. Such uniform formulas translate into punishing service cuts in some states, into a windfall in others. That seems like a nonstarter, too. Providing a generous block grant to every state solves one political problem, but it’s costly.

Especially when Republicans control 32 state capitols, radical overhaul of ACA would produce an internecine fight that Republican governors dearly wish to avoid. That’s why, since Election Day, Republican governors in Illinois, Kentucky, Nevada, Massachusetts, Arkansas, Michigan, Utah, Alabama, and Arizona have been on public record asking Congress to slow down on ACA.

In this environment, I’m more optimistic than I was election night. Despite President-elect Trump’s unlikely victory – or maybe because of it – the American public has made its views known. Americans do not want ACA precipitously wrecked. Americans do not want to damage the Medicaid medical safety-net that serves 70 million people.

Of course, Congress may ignore this consensus and plunge ahead. If it does, though, I’ll bet there will be hell to pay.