Harvey Shows Why Turning Medicaid Into a Block Grant Carries Huge Risks

Let’s go back in time to March of this year, when the biggest story in the news was the Republican health care bill in Congress.

If that feels like forever ago, here’s a bit of a recap. At that moment in time, the House GOP leadership was tooling around with several iterations of Medicaid reform. The plan was to roll back the Medicaid expansion that the Affordable Care Act had enabled and to revamp the funding mechanism of the federal program that provides health insurance for millions of low-income Americans.

The first version of the GOP bill would have transformed Medicaid into a per capita cap payment system. Under that system, states would be given a capped amount of federal funding per enrollee based on the number of enrollees in specific coverage categories. Analysis by the bipartisan Congressional Budget Office found that this change would have cut federal spending on Medicaid by $880 billion over the next decade.  

After version 1.0 of the bill was met with opposition from both moderate and conservative factions of the Republican Party, a “Manager’s Amendment” was tacked on to make it possible for Medicaid changes to go even further.

The updated bill would have allowed governors to convert their Medicaid programs to a block grant system, rather than a per capita cap, with barely any hoops to jump through to get there.

You may be thinking to yourself: That part of the health care debate is over. What’s the point of talking about this now?

Here’s why it’s important to talk about this now: the governor who has been the most vocal advocate for converting Medicaid into a block grant system is Texas Gov. Greg Abbott.

In fact, in January, Abbott wrote a letter filled with advice to congressional leaders about the future of their Obamacare repeal attempts. In it, he made the case for block grants.

"I encourage you and your colleagues to consider transitioning the Medicaid program to a block grant program. The block grants should ensure states retain maximum flexibility in designing their own program and provide some mechanism to account for fluctuations in population growth, the economy and the rising cost of health care," Abbott said.

But, contrary to Abbott’s appeal, health policy experts argue that unpredictable, unprecedented disasters like Hurricane Harvey are one of the primary reasons why block grant Medicaid systems have the potential to be so damaging for state governments and the lives of the people they’re tasked with serving.

What Does It Mean to Block Grant Medicaid?

Under a block grant system, the Medicaid program in state like Texas would get a fixed amount of money in federal grants. That amount would be based on historical federal and state Medicaid spending in that state and would increase year over year tied to inflation—spending can also be restricted even further according to how you choose to define inflation, but that’s another story entirely.

“The block grant system caps the amount of money the federal government has to spend, which is why the budget people like it,” Diane Rowland, the executive vice president of the Kaiser Family Foundation, told Route Fifty. “It says this is how much we’re going to spend and no more.”

Rowland, who is a nationally recognized health policy expert, speculated that budget-focused governors like the block grant model because it allows them to tether their own health care spending.

“I think governors like block grants when everything is going well because it gives them the ability to say, ‘I can’t spend any more money because this is as much money as the federal government will give me,’” Rowland said.

“But,” Rowland added, “that doesn’t provide a budget that says ‘oh, but the fourth-largest city in America is underwater and I need a lot more help.’”

Why a Block Grant Could Have Been Disastrous

There are a number of reasons why a block grant Medicaid system would be particularly bad at responding to a catastrophe like Harvey.

First, in a block grant system, federal funding does not rise as enrollment rates rise.

The existing Medicaid system is an open-ended entitlement where federal spending fluctuates according to the number of people enrolled and their health needs. Even under a per capita cap system spending rates are tied to the number of people being covered by the service.

Not so for a block grant program.

Likewise a block grant system does not allow for flexibility in terms of increasing health care costs and spending.

As Rowland put it, “the problem with a block grant is that it doesn’t automatically expand as the health needs expand. It therefore provides a fixed amount of money to the state and unless Congress increases that amount of money it doesn’t automatically go up according to state spending. That’s clearly the big negative.”

And, health care spending does tend to rise in the days, weeks and even years following a natural disaster.

One study from 2003 examined Medicaid claims from North Carolina counties that were affected by 1999’s Hurricane Floyd, a storm that took 51 lives, forced 50,000 people into shelters and destroyed more than 67,000 homes. In their analysis, the researchers found that the health care impact of the storm lingered for months after the rain had died down. The data showed a spending increase of $7.14 per month per enrollee during the first year after the hurricane. That equals a roughly $13.3 million increase in state and federal expenditures.

According to Rowland, a block grant system is also problematic in the wake of a natural disaster because of its potential to inhibit the implementation of Medicaid waivers. These waivers have been applied in numerous ways following national and local crises. Waivers in New York City after the Sept. 11, 2001, terrorist attacks loosened the documentation requirements for Medicaid enrollment and allowed New Yorkers who had been affected by the tragedy to gain coverage. And, Medicaid waivers have helped the federal government provide targeted and direct resources to populations affected by lead poisoning in Flint, Michigan. In the aftermath of Hurricane Katrina, the Department of Health and Human Services approved as many as seventeen separate waivers.

But it’s unclear how the use of these waivers would match up with a capped Medicaid system funded by a block grant.

“The current system allows waivers because it’s an open-ended entitlement,” Rowland said. “But I don’t know how you would structure these waivers under a block grant because a block grant is a basically a fixed pot of money.”

Of course, even under a block grant system, Congress could step in, but Rowland finds the idea of swift intervention from Congress somewhat laughable.

“When you talk about putting a cap on [Medicaid] you’re talking about saying “OK, we’ll build in what you’re spending today but if you have a disaster tomorrow it’s not going to change unless Congress goes back and gives you a special appropriation,” she said.

Rowland added somewhat sarcastically: “And those are easy to get don’t you think? Special congressional legislation?”