How Medicaid spending limits or block grants could affect care

Both the incoming administration of President-elect Donald Trump and Republican leaders in Congress have discussed turning Medicaid into block grants managed by states, but such a major shift in funding could reduce eligibility and coverage under the program.

In a Commonwealth Fund brief, Sara Rosenbaum, a health law and policy professor at the Milken Institute School of Public Health at George Washington University, said Medicaid’s high costs within the federal budget and growth thanks to increased enrollment make it a popular target when discussing limiting government spending. Putting an absolute limit on spending could have the effect of “reversing a 50-year trend of expanding Medicaid to protect some of the most vulnerable Americans.”

Rosenbaum and her coauthors looked at two possibilities: the block grant option explicitly favored by Trump or per capita limits on spending.

Under the block grant option, states would receive fixed annual amounts from the federal government to spend on healthcare activities. The advantage to lawmakers would be limiting Medicaid to growth tied to some predictable amount, such as inflation, or giving them the flexibility to keep spending flat. But it would also disconnect funding from the actual costs of providing care, potentially leaving providers or patients stuck with the extra expense.

“The federal contribution would remain the same, or grow only according to a preset formula, no matter how large the population in need becomes or how much a state actually must spend on health care for Medicaid recipients,” Rosenbaum and her coauthors wrote. “To permit states to manage their Medicaid programs with a fixed amount of federal funding, the entitlement to coverage would need to be eliminated, and federal rules regarding eligibility, coverage, and payment would need to be substantially restructured or repealed. The Children’s Health Insurance Program (CHIP) provides an example: The federal contribution is fixed and states are free to scale back enrollment and coverage as needed to avoid budget shortfalls.”

Rosenbaum notes a 2015 block grant proposal was estimated to reduce federal spending by $1 trillion over 10 years, but would do so mostly by denying Medicaid coverage to about 14 million people.

The per capita spending limit option may offer additional funding flexibility to keep up with increased enrollment. The same problem would arise when the real cost of providing coverage isn’t matched by the federal funds, likely forcing states to scale eligibility and services provided if they’re unwilling to devote more money to filling that gap.

“The effects of per capita caps could have significant consequences for people’s health care and for insurers. For example, states might reduce already-low provider payment rates, forcing out many current providers and thus limiting access to care, a shift that research suggests would be especially detrimental for people who need specialized treatment and long-term care,” Rosenbaum and her coauthors wrote.

These constraints, Rosenbaum argued, would more greatly expose Medicaid to the same drivers of costs commercial insurers have to contend with, like how often people need care and expensive advances in technology.