Poorer states would be left in the cold if a popular Republican healthcare overhaul to Medicaid is approved, a new study finds.
Republicans have been espousing the benefits of block grants for Medicaid payments to states for more than 20 years and included them in the latest proposal to repeal Obamacare.
However, a new report from the left-leaning think tank Urban Institute finds that block grants and another reform called per capita caps would help richer states more than those that don’t spend a lot on Medicaid and would not offer more flexibility than the current system, as promised by Republicans.
Block grants provide states with Medicaid funding based on a formula that includes their historical spending levels on the low-income healthcare program times and a predetermined growth rate, the think tank said. The per capita cap is a similar tool that sets a limit on how much a state receives per enrollee.
The problem, according to the Urban Institute, is there is a wide variation in what states have spent on Medicaid. A block grant or cap system would essentially lock in current state spending levels and not give states the flexibility to change their spending amounts, the think tank said.
The federal government and states jointly fund Medicaid, with the federal government paying states through a formula based on criteria that includes per capita income. The federal government pays an average of 57 percent, but it can be as much as 75 percent for states with more lower-income residents.
Republicans have said that block grants or per capita caps are a better system as they give states more flexibility and could reduce federal spending.
The latest Republican healthcare plan offered by House Speaker Paul Ryan earlier this year would give states the option of choosing a per capita cap or block grant.
“Through this arrangement, both the federal government and states would have budgetary certainty, which would create strong incentives for the states to manage the federal funding wisely,” the Republican plan says.
The Urban Institute doesn’t look into the merits of block grants and caps compared to the traditional system. The analysis does note, however, that establishing a grant or cap would be difficult “because of the large disparities across states that have built up over time in the federal share of Medicaid expenditures.”
The problem is the current matching rate for any block grant or cap would be based on the current federal funding levels for each state and then multiplied by a growth rate, Urban said. That means states that spend more on Medicaid receive larger block grants and capita caps.
It estimated that 2017 federal block grant spending per low-income person would be $5,438 in Vermont and $5,646 per resident in New York. Compare that to $1,696 in Utah and $1,599 in New Hampshire.
Per capita caps would face the same problem. New York would receive an estimated $6,540 in funding per enrollee in 2017 versus $3,084 for New Hampshire.
“It is likely to prove, as it has in the past, very difficult to enact mechanisms like block grants and per capita caps into law because of the widespread differences in the current distribution of federal dollars that would become locked into the system,” the Urban Institute concluded.
Republicans say that block grants and caps would reduce federal spending and modernize Medicaid by improving incentives for states to create savings to the entitlement program.
“Putting the Medicaid program on a sustainable budget with per capita allotments will establish transparent funding streams for states to meet the individual healthcare needs of distinct Medicaid population categories,” the House GOP healthcare plan says.
Republicans say a fixed allotment would protect federal taxpayers by reducing a “perverse incentive for state politicians to spend more money just to acquire more federal funding.”
Block grants also would create strong incentives for states to manage their federal dollars wisely.
“Any program spending that exceeded the federal amount provided to the state would have to be financed by the state,” the plan says. “Conversely, the funding provided to states would not be reduced if they found innovative ways to reduce Medicaid costs. Any savings that a state was able to achieve would remain within that state.”
