Medicaid Block Grant Forebodes Declines In Enrollment

A recent study from the folks at the Urban Institute provides state-by-state enrollment projections under the House budget plan. I don’t think any regular Say Ahhh! readers will be surprised to learn that the news isn’t good.

Under the plan, there will be a 44% reduction in federal Medicaid funds, including spending under the ACA. Taking the ACA out of the picture, federal funding would decline by 31% under the block grant proposed in the House budget. In response, states will have to determine how they will manage their Medicaid programs with far less federal support. The authors suggest what might happen to enrollment under three different scenarios. Let’s take a closer look, ignoring the expansion of Medicaid that is scheduled to occur in 2014 as a result of the ACA:

1. If per capita Medicaid spending growth remains the same, 19.4 million people would be cut from Medicaid. The largest enrollment declines would take place in those states with the largest Medicaid populations – California alone would see a drop of 3.8 million people.

2. If states are able to reduce per capita spending by achieving significant efficiencies, the need for enrollment cuts would be mitigated, but 13.8 million people would still lose coverage. This scenario is highly unlikely as health care costs have grown at well over the rate of GDP for the past several decades [link 3]; in fact, between 1985 and 2008, excess cost growth averaged 1.2 percentage points for Medicaid (and it’s important to note that this rate is lower than both Medicare and other national health spending).

3. The third scenario assumes that states decide to protect seniors and those with disabilities enrolled in the program, reducing spending by 10% through benefit and provider rate reductions. As a result, the remainder of the reduction in spending would come from adults and children, resulting in an enrollment decline of 26.8 million.

But what about increasing state spending? Well, there are going to be some states out there that are unwilling to reduce enrollment in Medicaid so drastically. However, in order to maintain current enrollment under the proposal, states would have to increase spending by $241 billion or 71% (if states could control spending to GDP growth, states expenditures would still have to increase by 45%). The increases would be the greatest in those states with higher matching rates, such as those in the South and West. Mississippi, for example, would have to increase spending by 127% to make up for the loss of federal support; interesting given Governor Barbour’s assertion that a 50% reduction (twice as large as was modeled here) would not result in a loss of coverage. 

Although ongoing budget deficits need to be addressed, calls to convert Medicaid to a block grant fail to fully grasp the impact such changes would have on those served by the program. As this analysis shows, a block grant with such limited funding, would likely compel states to drastically reduce enrollment, adding to the ranks of the uninsured, and shifting costs to the states.