By Suzanne Wikle and Jessica Gehr of CLASP

Congress is reportedly again considering proposals to change the fundamental structure of Medicaid, including by turning it into a block grant program or providing fixed allotments per recipient (“per capita caps”). Such proposals have been made repeatedly over the years, but consistently rejected. However, other programs with such funding structures offer strong lessons about the dangers of block grants and per capita caps. Today, less than one in five poor children receives cash assistance under the federal Temporary Assistance for Needy Families (TANF) block grant and less than one in six children eligible under federal income parameters receive child care assistance under the Child Care and Development Block Grant (CCDBG) and other funding sources.

CLASP’s new report, Medicaid Financing: Dangers of Block Grants and Per Capita Caps, Lessons from TANF and CCDBG, looks at the lessons from 20 years of block grants in TANF and CCDBG and discusses the implications for Medicaid under such a financing structure.

The key lesson from TANF and CCDBG is that funding will not keep up with need, and state budgets will bear the burden of that shortfall. This is exactly what has happened with TANF, which has been flat funded since it was block granted 20 years ago and not adjusted for either inflation or population growth over time. States are forced to spread fewer dollars across a larger number of children, requiring them to respond by cutting benefits and/or serving fewer families. If Medicaid were to become a block grant, state policymakers would be forced to decide how to make up the difference and/or Medicaid recipients, including many children, may lose services or eligibility.

In addition to shifting additional costs to states, under a block grant, Medicaid would no longer respond automatically to economic downturns. Medicaid is a true safety net program for children – always there when families fall on hard times. The same cannot be said for TANF and CCDBG, and should Medicaid’s financing be altered, children may no longer have this reliable safety net when they most need it.

Proponents of block grants and per capita caps argue that removing the federal standards for eligibility and coverage will give states more flexibility. However, states already have the flexibility they need through existing waivers that allow them to innovate and tailor the program to meet state needs. Under a block grant or per capita cap scenario, state flexibility to innovate really means state flexibility to cut. Both TANF and CCDBG are perfect examples of this so-called flexibility.

Capped federal funding, especially during economic downturns, will cause states to make tough decisions and will find themselves under pressure to cut benefits and reimbursements. We’ve seen this in both TANF and CCDBG – states cut the amount of cash assistance to families through TANF, and child care subsidies don’t keep up with the market rate for care, so low-income families can access fewer and fewer providers. A block grant in Medicaid would mirror these problems. States would be under pressure to cut their Medicaid budget by reducing benefits, instituting higher co-payments or other cost-sharing arrangements, or dropping coverage for certain benefits (e.g., early intervention therapies for young children).

In addition to reducing benefits and reimbursements, states may cut eligibility, pitting vulnerable populations against each other. CCDBG and TANF have no guarantee to serve all eligible children, and the share of poor children receiving cash assistance and child care assistance has reached fewer children each year. Under a different Medicaid financing structure, states may be forced due to fiscal pressures to choose which vulnerable populations to cover when cutting eligibility. While children are the least expensive to cover, they are not an active political constituency, which could jeopardize their coverage.

Finally, changing Medicaid’s financing structure will create an inconsistent safety net across states. For TANF and CCDBG, the combination of disparate state funding and high state flexibility has created vast inconsistencies in the safety net system across the country. For example, the share of poor children receiving cash assistance ranges from almost 66 percent in California to 3 percent in Louisiana. Monthly cash assistance benefits for a family of three vary from $923 in Alaska to $170 in Mississippi. Medicaid programs are not identical across states now, but should Medicaid become a block grant, the difference in patient access to health care among states could become stark.

The bottom line – turning Medicaid into block grants or per capita caps is a bad deal for states and a bad deal for kids. Read the full brief for all the lessons from TANF and CCDBG and why it would be a mistake for Medicaid to follow suit.