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Block grant pros and cons

Conservatives call for innovation; others call for caution

By | May 02, 2011

The big thing most conservatives like about the idea of making Medicaid a block grant is the same thing that makes other analysts call it a bad idea: It would reduce federal spending on the program that provides health coverage for the nation's poor, disabled and frail elderly.

The pros

Michael Cannon, director of health policy studies at the libertarian Cato Institute, has called Medicaid a massive and irresponsible redistribution of the nation's wealth, shifting dollars from high-income states (such as New York) to lower-income states (such as Mississippi.)

In a recent op-ed piece, he wrote, "...every time a governor expands his or her state's Medicaid program, the federal government's system of matching grants effectively shifts 50 to 80 percent of the expansion's price tag to taxpayers in other states."

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Cato analyst Chris Edwards also concluded that Medicaid harms society at large by encouraging dependence on the government.

"Medicaid promotes an unhealthy dependence on government the same way that housing subsidies, farm subsidies, business subsidies and other aid does," Edwards wrote as part of an institute series of issues briefs on reasons to downsize the federal government.

"As with other welfare programs," Edwards wrote, "Medicaid targets benefits to people below certain income and asset cut-off levels. Such limits on eligibility tend to discourage individual savings, self-help and greater individual work efforts because recipients don't want to lose their current benefits."

Cannon and Edwards said making Medicaid a block grant would save taxpayers in two ways: Less federal cost and state officials would have greater incentive to root out fraud and abuse. They also say it could help push more people into the private market for health care.

The cons

But critics of the block grant idea, say the more likely results would be state taxpayers being stuck with the tab of ever increasing health care costs or major reductions in Medicaid services that would leave the poor with no good options for care.

Medicaid currently covers almost 70 million Americans, including one in three children, four in 10 births and 70 percent of nursing home residents. With passage of the Affordable Care Act, millions more low-income people will become eligible for the program, including tens of thousands in Kansas.

But that would change dramatically, if Republicans in the U.S. House prevail with the budget plan they approved last month. The so-called Ryan budget plan would make Medicaid a block grant and in the process reduce federal spending on the program by an estimated $771 billion between fiscal 2012 and 2021, according to the Congressional Budget Office. By fiscal 2030, federal Medicaid spending would be halved, according to CBO.

Among other things, the plan would eliminate Medicaid acute care benefits for the elderly.

"The magnitude of the federal Medicaid spending reductions under this proposal would make it difficult for states to maintain their current Medicaid service levels against other state priorities for spending," according to the non-partisan Congressional Research Service.

States could respond to the new responsibility by reducing payments to Medicaid providers such as doctors, hospitals and nursing homes, CRS stated. Or states might simply stop providing services they could no longer afford.

Support from Kansas officials

KHI News file photo

Congressman Tim Huelskamp

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But the block grant idea has strong support from Kansas Gov. Sam Brownback and Kansans in Congress.

Congressman Tim Huelskamp, a Republican who represents the state's 1st District, wrote in an April 4 blog post on The Hill that the Medicaid block grant provisions of the budget plan approved by Republicans in the U.S. House was one of the things he liked best about it.

He said block grants would allow states to craft better ways to care for Medicaid patients.

"One item that I am particularly supportive of in the Republican budget is the change in the way states receive Medicaid funding," Huelskamp wrote. "If left untouched, costs of Medicaid will soar, and the program will continue to overtake a larger share of the budget with no regard to efficiency, effectiveness, and innovation.

"When serving in the Kansas State Senate in 2003, I had the privilege of working on a Medicaid task force. We looked at the ways the state could improve Medicaid services as well as how it the state could spend money more efficiently. One of the challenges we encountered continually was that the state of Kansas was limited in what it could do with the money it received from Washington - and restricted how Kansas spends its own taxes as well.

"Whether Republican or Democratic administrations were in charge, too much red tape kept us from improving Medicaid," Huelskamp wrote. "Kansas and the 49 other states have been locked into Washington’s dictums when it comes this program, instead of having the essential flexibility they need to administer the program in the states’ unique and best interests."

But Kansas officials who favor block grants haven't yet described how they might improve Medicaid services, if they got their way.

Lt. Gov. Jeff Colyer, who is leading the Brownback administration's effort to remake Medicaid, said a block grant would be essential.

But he said it was too soon to offer examples of what the administration needs flexibility to do. Those details will start to emerge this summer, he said, when a series of public meetings on the topic are scheduled.

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