Medicaid Block Grants: Questions State Leaders Should Ask

CMS Administrator Seema Verma, the top federal Medicaid official, has been encouraging states to be the first on the block to block grant their Medicaid programs.  Some states are beginning to respond.

Late last month Tennessee’s Governor Bill Lee signed legislation directing him to submit a proposal for a Medicaid block grant to the federal government.  Around the same time, the Alaska Department of Health and Social Services awarded a $100,000 contract to the Public Consulting Group to conduct an analysis of, among other things, implementing a Medicaid block grant.

There’s no need for Alaska, or any other state, to engage a consultant to help it decide whether to take Administrator Verma up on her offer to cap federal payments in exchange for “flexibilities.”  All a state needs to know is that her administration’s FY 2020 budget relies on block grants as the mechanism for cutting federal Medicaid spending.  The amount of the cut—in this case, a stunning $1.5 trillion over 10 years—is not as important to the administration as changing the fundamental structure of the program so that federal funds no longer match state spending on health and long-term care services on an open-ended basis. Once the fixed annual allotment is in place, the federal government can always dial it down to get the savings it needs to solve its own budget problems.

Administrator Verma is recruiting volunteers for the administration’s Medicaid block grant brigade.  Should your state be the first to sign up?  Here are some questions a state should ask itself:

For those responsible for forecasting and planning: What is your projection for the number of citizens age 85 and over who are likely to need nursing home care or other long-term care services and supports?  What is your projection for the number of children under 18 and parents in working poor and near-poor families who will be unable to afford insurance coverage without Medicaid?

For those responsible for state and local economic development: What role does Medicaid play in your long-term economic development strategy, particularly for rural areas with financially stressed hospitals? If the federal government were to reduce its Medicaid matching payments to the state relative to your projections, how would that affect the state’s ability to meet your strategic objectives?  If you were the only state opting under a federal funding cap, would you be at a competitive disadvantage with other states, especially when recruiting and retaining employees for your health care sector?

For those responsible for public health: What are the main public health challenges facing the state? How much do you now rely on Medicaid to help address those challenges? How would a reduction in federal Medicaid funds affect your ability to address those challenges in the future?

For those responsible for providing mental health services: What do you project will be the need for mental health and substance use disorder services over the next decade?  How dependent is your agency on Medicaid for helping fund the provision of those services?  If federal Medicaid funds are reduced, what effect will that have on your agency’s ability to meet the need for mental health and substance use disorder services in the future?

For those responsible for K-12 education: What role do federal Medicaid funds play in supporting the primary health care services and the services to children with disabilities in grades K-12 that school districts now provide?  Do you expect the number of children needing primary care or special services to increase?  What options would school districts have to respond to a reduction in Medicaid funds?

For those responsible for state emergency preparedness: What role do Medicaid funds play in the operation of hospital emergency rooms, trauma centers, and burn units in the state?  If Medicaid revenues to these community-wide resources fall because federal Medicaid matching funds are limited, what are the implications for the capacity of the state to respond to natural disasters or terrorist attacks?

For those responsible for higher-education: How important are Medicaid funds to the operation of your hospitals and medical schools? If Medicaid revenues fall because federal Medicaid matching funds are limited, what are the implications for patient care at your hospitals?  For the teaching of medical students and the training of medical residents?

For those responsible for state budgets: How important are federal Medicaid funds as a source of revenue in the state budget?  What role do you expect these funds to play in future state budgets?  If federal Medicaid matching payments were to decline relative to your projections, what implications could that have for the state’s credit rating?

One of the first responses from any of these state officials will likely be: what will the state Medicaid program look like under a block grant, and will my funding stream be protected?  And the answer to those questions will hinge upon how the state Medicaid director grapples with the radical change to the Medicaid program.

The questions the state Medicaid Director should be asked include: If you were given a fixed amount of federal Medicaid matching funds to work with each year, and if that amount were less than you needed to run your current program, how exactly would you use your new “flexibility” to change your program in order to stay under that limit?  Would you reform the delivery system by promoting value-based payment? Would you contract with managed care companies and let them decide how to stay under the limit?  Would you cap enrollment?  Reduce benefits?  Increase cost-sharing? Cut provider payment rates?  All of the above?

The answers to these questions will vary from state to state.  It is, however, very hard to imagine a state whose citizens and communities will be better off if the federal government limits its fiscal exposure to their health and long-term care needs.  This may help to explain why no state in the 50+ year history of the Medicaid program has volunteered for a block grant.

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