Connecting state and local government leaders

Can Block Grants Save the Day on Health Reform?

The Georgia State Capitol in Atlanta

The Georgia State Capitol in Atlanta Shutterstock


Connecting state and local government leaders

States haven’t necessarily proven to be more efficient managers of health care funding than the federal government.

There’s a basic assumption in the Graham-Cassidy health care bill. It would slash federal cash for the states that didn’t expand their Medicaid programs under Obamacare by $180 billion, or 11 percent, by the year 2026. It assumes that new block grants for the states would allow them to find enough efficiencies to make up the difference.

That is a very, very tall order. What’s the evidence that the states would prove more efficient managers of health care funding than the feds?

One way to crack this question open is to compare federal and state efforts to reduce improper payments for Medicare and Medicaid. Improper payments are either payments that the government should not have made—or that the government made in the wrong amount. The feds are responsible for managing Medicare, the health care program for the elderly. The states have primary responsibility for Medicaid, the health care program for the poor and disabled. So a comparison of the improper payment rates for the two programs would give a clue about who can manage health care better.

For 2016, the numbers are interesting. The improper payment rate for Medicare was 11.0 percent. For Medicaid, the rate was 10.48 percent. The difference between the feds and the states is very small—and, to the degree that the difference of half a percent is meaningful, it’s impossible to imagine that it would make up for the 24 percent cut in Medicaid that Graham-Cassidy would bring by 2026.

And consider this. Some states are already running their Medicaid programs very efficiently. So, to the degree to which cost savings are possible, they’ve already achieved them. Some states aren’t doing nearly as well. But for them to catch up, they’d have to develop new, Herculean strength that has eluded them so far.

The states could make up the difference by increasing their own contributions, but most states are so financially strapped it would be hard to determine where the money might come from. The states could cut back on benefits or impose new limits, but that wouldn’t be consistent with the program’s promise.

Two things seem certain. One is that it’s going to be impossible for the states to make up the shortfall with greater efficiencies. The other is that we’ll end up with greater disparities in the health coverage that citizens get, as different states go down different roads to cope with the cuts.

Those favoring repeal-and-replace are deep in a corner from which there are few escape routes. But before pursuing the block grant strategy, which would load all the tough decisions onto the states, it’s worth looking carefully ahead at where this road would lead.

This column was updated with more recent data on the distribution of federal funding on the block grant, as estimated by the Henry J. Kaiser Family Foundation.

Donald F. Kettl is a professor of public policy at the University of Maryland and nonresident senior fellow at the Brookings Institution and the Volcker Alliance.

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