Illustrating the Harmful Impact of Medicaid Block Grants and Per Capita Caps on State Funding of K-12 Education

Top Lines

  • Cuts to federal Medicaid funding – through block grants & per capita caps – would reduce access to health care provided to students while leaving less state money for schools.

In This Report:

Key Findings

  • States are facing large and growing budget deficits due to the COVID-19 health and economic crisis. School districts are bracing for substantial cuts to state funding of K-12 education. Those funding cuts would be even more dire if the Medicaid program had been previously converted into a block grant or per capita cap as part of the failed effort by the Trump Administration and Congressional Republicans to repeal and replace the Affordable Care Act in 2017.
  • Medicaid block grants and per capita caps shift significant costs and risks to states, with the cuts to federal Medicaid funding growing larger over time. If states compensate for these funding reductions by cutting other parts of their budgets, state funding of K-12 education would be at considerable risk as it constitutes the largest share of state spending in their budgets.
  • The likely adverse impact of Medicaid block grants or per capita caps on K-12 education should be considered as part of the debate over the future of Medicaid and its financing at both the federal and state levels.

Introduction

States now face large and growing budget deficits due to the COVID-19 health and economic crisis.1 In turn, school districts are bracing for substantial cuts to state funding of K-12 education.2 These funding cuts, however, would likely be even deeper if the Trump Administration and Congressional Republicans had succeeded in radically restructuring federal financing of the Medicaid program by converting it to a block grant or a per capita cap as part of their failed effort to repeal and replace the Affordable Care Act in 2017.

For years, critics of Medicaid have claimed that Medicaid spending “crowds out” state K-12 funding, an argument intended to generate support for cutting spending on the program at both the federal and state levels and to generate opposition for states expanding Medicaid.3 Instead, as this issue brief illustrates, Medicaid block grants and per capita caps which would cut federal Medicaid funding would likely pose a considerable risk to state funding of K-12 education. In other words, preserving the current federal Medicaid financing structure is essential for sufficient state funding of K-12 education.

By cutting federal funding and shifting costs (and risks) to states, with the cuts growing larger over time, Medicaid block grants and per capita caps would impose considerable adverse pressures on overall state budgets.

Full Report

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  1. Elizabeth McNichol and Michael Leachman, “States Continue to Face Large Shortfalls Due to COVID-19 Effects, Center on Budget and Policy Priorities, June 15, 2020, https://www.cbpp.org/sites/default/files/atoms/ files/6-15-20sfp.pdf, and Center on Budget and Policy Priorities, “States Grappling with Hit to Tax Collections,” Updated June 15, 2020, https:// www.cbpp.org/sites/default/files/atoms/files/4-2-20sfp.pdf.
  2. Cory Turner, “A Looming Financial Meltdown for America’s Schools,” National Public Radio, May 26, 2020, https://www.npr. org/2020/05/26/858257200/the-pandemic-is-driving-americas-schoolstoward-a-financial-meltdown; Laura Meckler and Valerie Strauss, “Public Schools Face a Fall with a Lot More Costs and a Lot Less Funding,” Washington Post, May 27, 2020, https://www.washingtonpost.com/ local/education/public-school-budget-cuts-coronavirus/2020/05/27/ ff0f07da-9d62-11ea-ad09-8da7ec214672_story.html; and Naaz Modan, “’A Different Kind of Horrific’ for K-12 as States Anticipate Revenue Shortfalls,” Education Dive, May 29, 2020, https://www.educationdive. com/news/a-different-kind-of-horrific-for-k-12-as-states-anticipaterevenue-shortf/578701/. One estimate finds that school districts would need $230 billion in federal assistance over the next 2 fiscal years to offset state funding losses and increased COVID-19 related spending. Michael Griffith, “What Will It Take to Stabilize Schools in the Time of COVID-19,” Learning Policy Institute, May 7, 2020, https://learningpolicyinstitute.org/ blog/what-will-it-take-stabilize-schools-time-covid-19.
  3. See, for example, Adam Millsap, “Medicaid Spending Is Taking Over State Budgets,” Forbes, January 23, 2020, https://www.forbes.com/ sites/adammillsap/2020/01/23/medicaid-spending-is-taking-overstate-budgets/#787ab299dfd0, and Marc Joffe, “Growth in State Medicaid Spending Crowding Out Spending on Other Major State Programs,” Mercatus Center, October 28, 2015, https://www.mercatus. org/publications/urban-economics/growth-state-medicaid-spendingcrowding-out-spending-other-major-state.

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