Should Medicaid Be Converted to a Block-Grant Program?

It costs a lot more to provide medical care to the country’s poor today than it did when Medicaid was introduced: about $554 billion in 2015, compared with about $1 billion in 1966, the program’s first full year.

The bulk of this increase was driven not by rising health-care costs as much as it was by vast increases in the number of people covered by Medicaid, including millions more in the past few years alone under the Affordable Care Act.

Republicans in Congress say the program has become unsustainable. Medicaid’s current funding, they say—a guaranteed federal matching rate based on what each state spends, with a slightly larger percentage of costs matched in poorer states—should be replaced with a system that will cap, and in time reduce, the federal share of Medicaid costs. States would choose between a lump sum of money, called a block grant, or per capita funding tied to the number of people enrolled in their program.

With either choice, the federal share of Medicaid spending would decline over time because the formula sets spending at a specific amount projected to grow at a slower rate than actual health spending.

Critics of cuts in Medicaid, including Democrats and some Republican governors, argue that it will lead to reduced service and eligibility for the people who need it most.

Making the case for block grants is Hadley Heath Manning, a senior policy analyst and director of health policy at the Independent Women’s Forum, and a Tony Blankley Fellow at the Steamboat Institute. Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities, argues against them.

YES: It Would Cut Costs and Provide Better Care for the Needy

By Hadley Heath Manning

Some argue that Medicaid reform would inevitably lead to unfavorable changes in eligibility or benefits. This defense of the status quo presumes that Medicaid is serving the right people, and serving them well. But this is not the case. Medicaid today is dysfunctional, with its use of matching funds distorting budgets and encouraging wasteful practices. Its inadequate reimbursements to care providers, meanwhile, limit services for those who need them most.

By ending federal matching funds and shifting managerial responsibility to the states, Republicans propose to modernize Medicaid’s funding and give local authorities greater flexibility to design program innovations that are more specific to each state’s needs.

Don’t believe those who say Medicaid is efficient. The reason it costs less than private insurance is because it provides less. Medicaid provides “comprehensive coverage,” but coverage isn’t care. It is easy to write down a long list of services that are covered. Think of it as having a coupon for free health care—a coupon that is difficult, sometimes impossible, to redeem.

Even before the Affordable Care Act added millions more patients to the strained program, a study published by Health Affairs found that about one-third of doctors would not accept new Medicaid patients.

Indeed, Medicaid costs less than private health insurance because it pays health-care providers less than private insurance—and this is nothing to brag about. Medicaid’s substandard reimbursement levels are directly responsible for the trouble its patients have in accessing high-quality and timely care. Many experience delayed care and inferior health outcomes as a result, according to a Heritage Foundation report. Similarly, research compiled by the Manhattan Institute found that Medicaid patients were more likely to die during surgery and less likely to be diagnosed with deadly cancers in earlier, more treatable phases.

This is a tragedy, especially given the tremendous spending on Medicaid each year. All Americans deserve to know that the dollars they are spending to help people in need are being used wisely and effectively. A recent study published by the National Bureau of Economic Research suggests that each dollar of Medicaid spending delivers only 20 to 40 cents of welfare benefit to recipients.

The truly needy sick, the population for whom Medicaid was created, bear the burden of the program’s present brokenness.

States know their own needs best, and it’s much easier for constituents to provide feedback to state lawmakers than to congressmen. But states are addicted to a federal funding mechanism that precludes real reform. The federal government matches each dollar of state Medicaid outlays at a rate that varies from $1 to $3 by state, depending on need. States are thus effectively paid to spend on Medicaid, enticing them even to prioritize Medicaid over other state budget items, such as education.

The situation has become even worse under the ACA expansion, which pays states an enhanced rate for new enrollees in Medicaid. Many able-bodied adults have been spun into Medicaid’s web. These people would be better served by health policies that are more affordable for them and offer a greater choice of private health insurance that suits their needs.

State lawmakers need to refocus the Medicaid program on its original mission—serving the truly vulnerable poor. Reforms proposed by Republicans would also lead to reductions in administrative costs, waste, fraud and abuse. Year after year, the Government Accountability Office names Medicaid a “high-risk” program. And it’s getting worse: The program’s “improper payment rate” grew to 9.8% ($29 billion) in 2015 from 6.7% ($17.5 billion) in 2014, just on the federal side.

The ACA included about 20 tax increases to pay for its expansion of Medicaid. Undoing the law means undoing this new spending as well as undoing the tax increases (some of which affect low- and middle-income Americans as well as the wealthy).

Per capita allotments or block grants may result in reduced federal spending, but their primary purpose is to bring about reform of Medicaid. If the federal government’s only goal in Medicaid was reduced spending, it could keep the current “matching” scheme and simply reduce the federal match rate for states, but this wouldn’t be real reform.

Ms. Manning is a senior policy analyst and director of health policy at the Independent Women’s Forum, and a Tony Blankley Fellow at the Steamboat Institute. She can be reached at [email protected].