Block Grants: Fiscal Conservatism Repackaged as Flexibility

This blog post was written by Kamika Shaw, a Student in 2017 Spring Semester of Harvard Law School’s Public Health Law and Policy Seminar.

By any measure, the state of the American health care system is in flux.[i] As part of a package of so-called “health care reform,” the Trump Administration enthusiastically supports changes to the fundamental structure of Medicaid. Specifically, in support of rhetorical calls for increased “flexibility,” the administration has voiced its support for block grant measures that would give states more control over the administration of Medicaid, while simultaneously reducing federal government spending.[ii] Republicans have long suggested block grants as part of health care reform.[iii] Block grants are fixed amount of federal funding given to a state. Republicans who support block granting believe this methodology would give states more flexibility in terms of how to use their Medicaid funding, and allow states to be more innovative in providing health care delivery systems that are tailored to meet their constituent’s unique health needs.[iv] Despite this friendly packaging, there is one glaring stumbling block that proponents have failed to adequately address: waivers.

Medicaid is part of Social Security Act passed by President Lyndon B. Johnson in 1965. It aims to provide coverage to certain eligible individuals who are unable to pay health care costs themselves, with a funding structure based on the fundamental notion that enrollees are entitled to medically necessary care.[v] Currently, the federal government covers a certain portion of state Medicaid expenditures; federal funds make up a considerable portion of each state dollar spent.[vi] This means that if a state decides to increase its spending in a given year, federal funds will increase to match. Current Medicaid funding allows federal government spending to keep up with yearly increases in healthcare costs. Moreover, current Medicaid funding balances on a basic infrastructure of federalism: in return for the open-ended promise of federal dollars, states agree to abide by federal statutory strictures concerning the amount, duration and scope of benefits. Block granting would end this promise, and thereby alter fundamentally the entitlement nature of Medicaid. To justify this change, Republicans assert that block grants will allow states complete control over how and where they spend their Medicaid dollars, and will encourage states to create Medicaid programs with an eye towards transitioning some recipients off of Medicaid.[vii]

Block grant proponents fail to recognize that much of the flexibility they ostensibly seek is already available under Medicaid waivers. Under the statute, waivers give states the ability to create and innovate by allowing them to opt out of certain federal minimum provisions, allowing states to determine where Medicaid dollars would be most useful. These waivers are approved at the discretion of the Centers for Medicare and Medicaid Services. Waivers appear to provide just the type of flexibility and state discretion congressional leaders are using to justify block grant proposals. Waivers give states true flexibility, allowing them to expand Medicaid coverage, or contract it. While Republicans frame block grants in terms of flexibility and innovation, block grants would actually decrease flexibility. Block grants constrain state budgets in such a way that expansion would be impractical, thus fundamentally changing the way Medicaid operates. Instead, the budgetary constraints would force states to find ways of contracting programs while still providing adequate coverage. Undoubtedly, this is exactly what Republicans intend. The only fair conclusion is that block grant proposals have very little, if anything, to do with flexibility. Rather block grant proposals are driven by a preference for fiscal conservatism, and a rhetoric of personal responsibility, which rejects the idea that entitlement programs like Medicaid are valuable and worthy of government funding. Viewed on the justification of flexibility alone, one must ask whether block granting proposals are worthwhile, in light of the authority for state innovation that currently exists under waivers.

How Waivers Compare to Block Granting

The present allowance for flexibility afforded by waivers belies the assertion that block grants are a necessary sea change to the structure of Medicaid. Those in favor of block grants argue states should not have to endure years of waiting for waiver approval. Further, they argue that allowing existing waivers to adjust or keep those programs without asking for a waiver renewal, would increase both flexibility and creativity.[viii] However, this type of justification fails to account for the fact that waivers already provide the same type of flexibility. Waivers provide states with a great deal of latitude in terms tailoring and administering their respective programs. Massachusetts’s universal health care system is possible because of an 1115 waiver.[ix] In Indiana, then Governor Mike Pence and Seema Verma, President Trump’s appointee for administrator of CMS, used an 1115 waiver to implement a Medicaid scheme that created health savings accounts for recipients, making the program more closely resemble private insurance plans.[x] Rhode Island has used 1115 waivers to create its own block grant-like scheme.[xi] Given the amount of flexibility waivers currently grant to states, the flexibility and state-discretion arguments that proponents of block grants have argued seem dubious.

The application process for waivers and extensive government oversight have desirable impacts: it forces states to fully think out their plans before spending money trying to implement it; it encourages uniformity and program norms across states; and negotiations with CMS reduces instances of statutory violations. Additionally, the oversight makes sure that state innovation does not come at the expense of Medicaid recipient’s access to care. The oversight and administrative procedures also aligns with the way we treat other entitlements and civil rights. For example, under Title VII of the Civil Rights Act of 1965, the federal government oversees employers and acts as the arbiter of workplace place discrimination suits via the Equal Employment Opportunity Commission.[xii] Unemployment Insurance works similarly to Medicaid; it is a federal-state jointly funded program, and the Department of Labor oversees and regulates its administration.[xiii] These minimal standards are necessary to make sure that those who are most vulnerable have some way of enforcing their rights.

Given that the current cost-sharing scheme allows ample flexibility, the claim that flexibility is the reason to embrace block grants is dubious. Rather, the real impetus behind the block grant proposals is both fiscal conservatism and an aversion to government spending on entitlement programs in general. Block granting would shift much of the cost burden to the states. Furthermore, the slower increase rate for federal spending on Medicaid per year would mean less government spending on Medicaid in general. But fiscal conservatism is only part of the picture.

Republicans often talk about health care not only in terms of free choice, but personal responsibility. The rhetoric of personal responsibility places the blame for poor health outcomes on the individual, and does not take potential systemic inequalities into account. Health care is a particularly unpalatable forum in which to apply these ideological beliefs—no one ever asks to get sick. From the perspective of a person who embraces the personal responsibility framework, Medicaid might be viewed as doing more harm than good. Proponents of block granting ought to be more honest in revealing that the end of Medicaid would be desirable, rather than dressing up their concerns in the language of flexibility.

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[i] Jeremy Diamond et al, After a Health Care Failure, Plan B Suddenly More Appealing for Republicans, CNN (Mar. 29, 2017) http://www.cnn.com/2017/03/28/politics/republicans-health-care/

[ii] Allison Kojack, Republican Plan to Replace Obamacare Would Turn Medicaid Over to States, NPR (Jan. 22, 2017)  http://www.npr.org/sections/health-shots/2017/01/22/510984148/republican-plan-to-replace-obamacare-would-turn-medicaid-over-to-states

[iii] Alternatively, Republican proposals have included “per capita” caps.  Under this structure, the annual Medicaid allotment of federal money is set on a per-enrollee basis using established historical baselines.  Unlike a block granting structure, per-capita caps fluctuate with enrollment.

[iv] A Better Way, Our Vision for a Confident America (Jun. 22, 2016) https://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf

[v] CMS’ Program History: Medicare and Medicaid, CMS, (Jan. 31, 2017) https://www.cms.gov/About-CMS/Agency-Information/History/

[vi] Laura Snyder and Robin Rudowitz, Medicaid Financing: How Does it Work and What are the Implications?, Kaiser Family Foundation, (May 20, 2015) http://kff.org/medicaid/issue-brief/medicaid-financing-how-does-it-work-and-what-are-the-implications/

[vii] Shefali Luthra, Everything You Need to Know About Block Grants – The Heart of the GOP’s Medicaid Plans, Kaiser Health News, (Jan. 24, 2017)  http://khn.org/news/block-grants-medicaid-faq/

[viii] Supra note 2 at 28.

[ix] See John E. McDonough et al, Massachusetts Health Reform Implementation: Progress and Future Challenges, 4 Health Affairs w285 (2008) http://content.healthaffairs.org/content/27/4/w285

[x] https://www.theatlantic.com/politics/archive/2017/02/seema-vermas-vision-for-medicaid/517077/

[xi] Edward A. Miller et al, Medicaid’s Block Grants: Lessons from Rhode Island’s Global Waiver, State Heath Access Data Assistance Center (Jun. 2013) http://www.shadac.org/sites/default/files/publications/RI_Global_Waiver_Brief_FINAL.pdf

[xii] Jody Feder, Federal Rights Statutes: A Primer, LLSDC (Mar. 26, 2012) http://www.llsdc.org/assets/sourcebook/crs-rl33386.pdf

[xiii] Unemployment Benefits, https://www.benefits.gov/benefits/benefit-details/91