Question

Problem 2. Medicaid is jointly funded by the federal and state governments. States receive federal matching funds and have great flexibility in implementing the program as long as they meet a core set of requirements. In recent years, there have been discussions on how to reform Medicaid financing. Among various proposals, Medicaid block grant and per capita cap have received the most attention. a. What is Medicaid block grant? How can block grant affect Medicaid enrollment and benefits? Please explain. b. What is per capita cap and how is it different from block grant? Will per capita cap affect Medicaid enrollment or benefits? Please explain. c. What could be a potential unintended consequence of reduced level of Medicaid funding even if states do not restrict enrollment or limit benefits? (Hint: Medi- caid reimbursement rates are already lower than those under Medicare or private insurance.)

Answer 1

(a) Medicaid Block Grant: To know what is Medicaid Block Grant, we need to first know what exactly A “block grant” means. A block grant is a fixed amount of money that the federal government gives to a state for a specific purpose. In Medicaid block grant, the federal government set each state’s Medicaid spending amount in advance. This amount is usually based on some estimate of state Medicaid spending, but most block grant proposals start with significant cuts in federal Medicaid support.

Effect of Block Grant on Medicaid enrollment and benefits:

Because of 2010 health law, which led states to expand Medicaid eligibility, more people will face the brunt of these cuts.

Block grant proposals could cut Medicaid spending by as much as a third over the next decade. The cuts would start small, growing larger over the years.

Medicaid spending will vary across states not only because of their different local costs, covered services, and mix of beneficiaries but also because of their different growth rates.

Currently, Medicaid covers low income individuals who meet categorical and income standards including children and parents, individuals with diverse physical and mental conditions and disabilities, and seniors. With block grant sets minimum eligibility standards, and states may expand beyond these minimum levels and states cannot cap or close enrollment for individuals who meet eligibility standards for the program. This helps to ensure that coverage is available when unemployment rises and incomes fall during an economic downturn.

Premiums and cost-sharing requirements result in coverage losses and reduced utilization which can generate some cost savings due to lower enrollment or suppressed utilization.

Reducing Benefits: One of the flexibility that states would get under block grant proposal is to cover different sets of optional benefits for different populations. Earlier an optional benefit provided to one categorically eligible group of Medicaid enrollees must be provided to all. This allows, for example, a state to cover eyeglasses and dental services for children age 6 through 18 in families with income below the poverty level, but not for children in families with income above the poverty level (the latter being an optional eligibility group that the state could choose to not cover at all).

(B) Per Capita Cap

Per capita caps provide states federal Medicaid funding by number of enrollees. Unlike block grants, this design allows states to receive more funding within a given year if the Medicaid population grows. However, when designing a per capita cap the biggest challenge is to determine the spending per person and inturn defining the total spending. Block grants provide a set amount of federal Medicaid funding for states, which can be trended forward overtime. A block grant is a set allotment for a given year. A block grant allotment can change from year to year to adjust for population growth. However, within a given year the Medicaid block grants do not account for the counter-cyclical nature of the Medicaid program, in which Medicaid spending and enrollment growth follows economic cycles. Per capita caps provide states federal Medicaid funding by number of enrollees. Unlike block grants, this design allows states to receive more funding within a given year if the Medicaid population grows.

Impact of per capita cap

• The shift to per capita caps would limit federal Medicaid contributions – a change that is likely to have fiscal implications for states and enrollees, including 11 million people with both Medicare and Medicaid for lower income people.
• A structural change to Medicaid financing could have significant implications for low-income people on Medicare because Medicaid plays a major role in providing and financing benefits to low-income people that Medicare does not cover, and because the cost of their care accounts for a disproportionately large share of Medicaid spending.
• The impact on any given state will depend on a number of factors, including the growth in the share of its 85+ (highest cost) population
• States with costs that exceed the cap for their senior or disabled enrollees would need to find other revenues to maintain coverage, or reduce costs

(C) Consequences of reduced level of Medical Funding

States could choose to respond in many ways. For example, they could raise taxes or reduce education spending to fill in gaps in federal funding for Medicaid.

A big reduction in federal Medicaid spending will result in real-life costs to our society, such as children without basic pediatric care, seniors without caregivers and people with disabilities losing medical care and services that allow them to lead independent lives.

The decision to eliminate collaborative funding at a federal level in favor of implementing block grants only puts citizens and states at risk of a reduced quality of life as they lose necessary programs and benefits in order to bridge the budget gap.