In the ongoing “repeal and replace” discussion surrounding the Affordable Care Act (ACA), a constant focus is the topic of block grants to pay for Medicaid (known in California as Medi-Cal). One of the proposals being considered is a renewed use of block grants.
A popular Republican approach that dates back to the Reagan administration, block grants aim to control spending using a budgetary funding mechanism by which full control of the program is turned over to the states with the federal government imposing a cap on what it spends each year. If implemented for the Medicaid component of the ACA, block grants would materially change the structure of the program.
Currently, the federal government covers a fixed percentage of a state’s Medicaid cost: Fifty percent herein California for the traditional pre-ACA expansion population and up to 90 percent of the cost for those covered under the expansion started in 2013. The state is then responsible for paying the difference and under this current model, states are required to cover certain services and people. Under a block grant model, the state would receive a fixed dollar amount, with the state (still) responsible for all costs in excess of the capped amount, but essentially with no requirements attached. This leaves the state to decide which services to provide and who will be eligible to receive those services.
The block grant model is a funding mechanism intended to produce budgetary savings by basing the state’s initial block grant amount on its current or historical spending and then increasing it annually at a slower rate, such as at the rate of inflation, as opposed to the rate of growth in federal Medicaid spending. This can result in federal funding shortfalls that grow steadily larger each year. The nonpartisan Congressional Budget Office estimates recent block grant proposals could cut Medicaid spending by as much as one-third over the next decade. Such cuts would start small and grow larger over the years, placing an increasing responsibility on states to reallocate resources.
For more background on block granting, see: http://khn.org/block-grants.