When my kids were younger and we’d go out for ice cream, they always wanted to go to FroYo instead of Sweet Frog. Why? Because FroYo had free hot fudge (and free caramel sauce)! The “free” fudge was a big draw because they thought it was a great deal. As they got older, I explained how “free” isn’t really free, it’s a marketing pitch to draw them in. As a for-profit company, FroYo wasn’t being beneficent in giving away free hot fudge but likely increased the price of other items to pay for the free hot fudge. It was a good economics lesson that equally applies to Medicaid and Tennessee’s recent proposal to block grant its Medicaid program
As set up by Congress, Medicaid is an entitlement for states, in other words: “open-ended” financing for states based on the medical assistance provided to residents of the state.
So how is this relevant to block grants? Well, if something seems too good to be true – like free hot fudge (or if you’re of my generation, a certain bridge in Brooklyn I could sell you) – it probably is. Seema Verma, current Administrator of the Centers for Medicare & Medicaid Services, has been touting the benefits of Medicaid block grants/per capita caps. Tennessee recently became the first state to submit a request to convert its Medicaid program into what it says is a block grant. As set up by Congress, Medicaid is an entitlement for states, in other words: “open-ended” financing for states based on the medical assistance provided to residents of the state. Let’s break down what that means using very simple numbers. If a state budgets $100 for Medicaid but spends $150 (or $200 or $500 or whatever) on services, the federal government pays its share of costs (at least 50%) for the total amount the state spends. The federal government doesn’t stop paying if the state anticipated spending less or if other reasons caused the state to spend more than expected (maybe because the economy turns sour or there’s a natural disaster that causes people to lose their jobs).
Under a block grant, if a state tells CMS it’s going to spend $100 but spends $150, the state must pay 100% of the costs over its budget. So if a new medical test or some blockbuster cancer drug comes along and the state spends more than it anticipated, it can’t ask the federal government for more money. The same holds true if more people need Medicaid because of an economic downturn, a natural disaster, or because they are getting older and earning less money. The state could spend more of its own money to make up the difference. More likely, the state is going to try to cut Medicaid spending instead of spending more money. States can cut eligibility (less people enrolled), services (less services), or provider rates (paying providers less which means some providers may stop seeing Medicaid enrollees). Each option mean less health care for the low-income individuals and families relying on Medicaid and less money for the communities who benefit from the state (and federal) spending on health care.
When Tennessee received comments on its block grant proposal, it received about 1,800 public comments, but more than 1,700 were overtly negative and only 11 were supportive.
A per capita cap operates slightly differently but still puts downward pressure on state funding. For simplicity’s sake, let’s say a state negotiates with CMS to get $10 for every Medicaid enrollee (per capita means per head/person). If the state estimates that they’ll have 1,000 enrollees, that’s $10,000 ($10 x 1,000). Under a block grant, $10,000 is the limit of the federal funding no matter what. Under a per capita cap, if the state enrolls 1,200 individuals instead of 1,000, the state would get $10 for each person or $12,000 instead of $10,000. This helps a state respond to economic downturns or natural disasters. But it doesn’t account for the issues like new treatments, drugs, or rising medical costs. The state would still be on the hook to pay 100% of the costs above $10 per person.
So why would a state want a block grant or a per capita cap? It’s all about the fudge, or in this case, the “flexibility.” As noted by The Hill, imposing Medicaid block grants has long been a major conservative goal, one that is being encouraged by the Trump administration. For them, it’s not about finding ways to ensure that all of us have access to high quality, comprehensive, and affordable coverage. It’s finding ways to slash Medicaid by dressing it up as free hot fudge. When Tennessee received comments on its block grant proposal, it received about 1,800 public comments, but more than 1,700 were overtly negative and only 11 were supportive.
Medicaid enrollees know the fudge isn’t free. But for them, it’s about more than a sundae, it’s about their health and their lives. So don’t take the bait even though it looks darn sweet.