Restructuring Medicaid With Block Grants
Medicaid has been one of the U.S. federal
government's most successful programs. It has served as a safety net for
millions of the poor since 1966 and has resulted in those millions having
many of their health care needs met. However, as with Medicare and all
health care services in the U.S., the cost of the Medicaid program has
been rising steadily. Probably for this reason, and to reduce costs for
the federal government, Reagan conservatives introduced block grants as
a way to "reform " Medicaid. They did not succeed in doing so,
but when the Clinton administration took on the welfare program and axed
it, part of the axing consisted of changing AFDC into a block-grant program.
The Clinton Administration also introduced SCHIP (State Children's Health
Insurance Program) as a block-grant program.
Now Bush is trying to bring block grants
to Medicaid. Bush's plan to restructure Medicaid (called "Medi-cal"
in California), was outlined by Health and Human Services Secretary Thompson
in early 2003. The proposal would also include SCHIP (called "Healthy
Families" in California), and would require congressional approval.
To better understand the proposal, let's first look at how these two programs
operate under current federal law.
At the present time, Medicaid covers two
separate groups: the mandatory population and the optional population.
The mandatory population includes poor children,
children in foster care, poor pregnant women (whose incomes are below
133% of federal poverty level), 12 million elderly poor and disabled (including
older poor people who are on Medicare) and adults on SSI. States are mandated
to provide this population with services which include physician and hospital
services (see Note below). Other services to this population may be provided
at the states' discretion (e.g., prescription drugs, hospice care, dental
and vision care).
The optional population includes children
and parents with slightly higher incomes than the mandatory population
plus the disabled and the elderly in nursing homes. Coverage of this population
(or parts thereof) as well as the benefits are granted at the discretion
of the states. Also, limited co-payments are allowed for some of the benefits
provided to this population. The law requires that benefits to this population
be comparable among recipients and of sufficient amount, duration and
scope to serve their intended purpose. The optional population makes up
about 1/3 of those covered by Medicaid but accounts for 2/3 of the cost
of the program.
The total actual cost of benefits to both
populations is shared by the states and the federal government. Each state
receives from between $1 and $3 from the federal government for each $1
it spends on Medicaid, depending mainly on its population. Moreover, the
states are guaranteed additional federal funds if their Medicaid costs
increase. In fiscal year 2002, Medicaid covered 47 million people at a
total cost (state and federal) of $256 million.
Currently, hospitals which provide significant
safety-net care are allowed to bill Medicaid at higher than their actual
cost and use the difference to fund charity care.
SCHIP is a program designed to serve children
from families with incomes slightly too high to qualify the children for
Medicaid. This children's program is funded entirely by a federal block
grant. In states where this grant is not used up for services to SCHIP-eligible
children, states may use the surplus to cover parents of eligible children.
Bush Administration Proposal
The 2003 Bush administration plan to restructure
Medicaid allows states to remain under the existing Medicaid system as
described above or to voluntarily participate in a new system with the
following key features:
1) The open-ended cost-based federal matching
funds would be replaced by block grants. Each state would get two annual
allotments: one for ³acute care," corresponding to currently
required benefits for the mandatory population as defined, and another
"long-term-care" allotment to be used for the benefit of an
optional population which the state could redefine to maximize flexibility.
Also, states would be able to transfer up to ten percent of one allotment
to the other.
2) Comprehensive Medicaid benefits would
be preserved for the mandatory population, but states would have carte
blanche to alter Medicaid coverage for the optional population.
3) SCHIP coverage and children's Medicaid would be
merged into the ³acute care" allotment and the existing SCHIP
block-grant program would be discontinued.
4) The initial annual allotments to the states would be based on existing
combined federal payments for Medicaid and SCHIP. During the first seven
years of operation under the restructured program, annual increases in
the allotment would be set slightly higher than 8 1/2 percent. This would
create an incentive for states to join the restructured program since
8 1/2 percent is the rate which the Congressional Budget Office estimates
for program growth under present law. In years 8 through 10, however,
annual increases would be reduced to the extent required to yield an overall
8 1/2 percent per year over the first 10 years. Thereafter, the annual
increase would be fixed at 8 1/2 percent, effectively capping the federal
5) States would have to satisfy a "maintenance of effort" requirement
which would, in effect, allow them to cap future state Medicaid expenditures
at base level augmented only by a medical-care consumer price index increase.
6) Hospitals would no longer be able to
bill Medicaid for greater than actual cost, regardless of the level of
charity service they provide.
Why We Oppose Block Grants
Bock grants will force states to scale back
coverage over time. It would limit the amount of federal funds available
for Medicaid based on expenditures today, with low yearly increases certain
to be less than their actual cost increases. Essentially, this would freeze
their programs at a time when states have already reduced Medicaid coverage
and services in order to close budget gaps.
Families USA estimates the loss of public
health funding due to block granting would total almost a half trillion
dollars over ten years. It would result in loss of health care for nearly
690,000 seniors, nearly 3.9 million children, over 1.2 million disabled
and approximately 1.7 million other adults.
One of the major problems with a capped
allotment is that it precludes Medicaid from responding to the ebbs and
flows of the economy and health care costs. Medicaid is a counter-cyclical
program--as the economy weakens and people lose jobs, they can turn to
Medicaid for health insurance. With a capped allotment, a state will not
receive additional money as it enrolls more individuals. Thus, just when
the stresses on Medicaid are greatest, states will have less money to
spend per enrollee. Fastest growing states in the West would be especially
The cap also destroys Medicaid¹s role
as an entitlement program. It is this entitlement that makes Medicaid
insurance, that gives beneficiaries the right to obtain needed services
in a timely manner. Couched in ³flexibility,² the Bush administration¹s
proposal would destroy this individual right. Moreover, flexibility has
already failed as a magic bullet. Over the past decade, state flexibility
has been greatly enhanced, through the use of waivers, to allow mandatory
managed care and other cost containment initiatives. However, Medicaid
spending has nevertheless increased. Other factors, largely beyond state
control, are at the root of the spending increases--the aging of the population,
health care price inflation and increases in the number of people who
are unemployed or have disabilities.
States would have complete discretion to
determine cost-sharing, including co-pays, deductibles and premiums, for
all optional beneficiaries. This marks a change from current law, which
specifically prohibits cost-sharing for children in the Medicaid program,
limits co-payments to amounts that are ³nominal² and limits
cost-sharing for families and children receiving coverage through SCHIP.
Without any limitations of co-pays, cost-sharing and premiums, the block-grant
proposal would allow states to price coverage above the means of low-income
individuals, thereby creating the illusion of decreased demand.
Over 1.5 million individuals with disabilities
are now Medicaid ³optional² beneficiaries. The benefits used
by individuals with disabilities vary. Children with disabilities may
need specialty care, home-based care, medical equipment and, in some cases,
institutional care; working individuals with diabilities may need personal
attendants, prescription drugs and other supportive services to remain
independent; and frail elderly individuals may require home health care
or nursing home care. Under the Bush administration proposal, however,
states would have unfettered discretion to define both eligibility and
benefits so that the coverage needed by individuals with disabilities
will not be guaranteed.
Note: These are physician services; laboratory
and x-ray services; in-patient hospital services; outpatient hospital
services, federally qualified health center and rural health clinic services;
EPSDT (early and periodic screening diagnosis and treatment), nursing
facility services for individuals over age 21, family planning services
and supplies; pregnancy related services; nurse midwife services; certified
nurse practitioner services; and health care services (for individuals
entitled to nursing facility care).