Paul Ryan VP Nomination Ignites Medicaid Questions

Mitt Romney's running mate wants to make Medicaid a block grant. How could this controversial proposal affect states?
by | August 13, 2012 AT 11:00 AM
AP/Steve Helber

Updated Aug. 13, 2012: With the long-awaited selection of U.S. Rep. Paul Ryan (R-Wis.) as Mitt Romney's running mate this weekend, Ryan's controversial budget proposal is likely to become a central talking point in the race for the White House. Romney already came out in defense of it while on a campaign stop in Florida today, reports The Associated Press. Arguably the biggest fallout for states would be the conversion of Medicaid to a block grant -- an idea that's been part of Ryan's budget proposal for two consecutive years.

The concept was revived after the U.S. Supreme Court upheld the Affordable Care Act in June, when some Republican governors said that making Medicaid a block grant might persuade them to voluntarily expand the low-income insurance program. Governing recently examined how a block grant model could change Medicaid. Here's what we found:

Amid the whirlwind surrounding the Supreme Court's decision to make the Medicaid expansion in the Affordable Care Act (ACA) effectively optional for states, a well-worn question is creeping back into the sunlight: What if federal Medicaid funding was turned into a simple block grant?

It's an idea that's always been popular among conservatives -- it's been a part of U.S. Rep. Paul Ryan's budget proposal for two consecutive years. So, unsurprisingly, GOP governors who might otherwise be averse to expanding their Medicaid eligibility to 133 percent of the federal poverty level (the new ACA threshold) have floated the block grant idea as a way for the Obama administration to entice them to participate.

Five Republican governors -- from Virginia, Nebraska, Utah, Wyoming and Tennessee -- have said they would consider expanding Medicaid in exchange for block grant funding, which provides more flexibility in the way states spend federal dollars, according to Politico.

The Medicaid block grant concept is hardly new. It was first introduced in 1981, then again in 1995 and 2003 before appearing in Rep. Ryan's long-term budget plan. But it never garnered enough support to be passed. And the Obama administration has already expressed opposition to the idea.

So, is there any reason to think that a block grant would catch on this time? And if it did, what would that mean for Medicaid as it exists today?

The biggest change, some policy analysts say, would be a loss of accountability. Current federal Medicaid support for states, which accounts for between 50 percent and 75 percent of the program's spending, is subject to a variety of minimum federal requirements on coverage and eligibility. According to an April 2011 issue brief from the Kaiser Family Foundation, a block grant could potentially remove those requirements and result in fewer people being eligible for and covered by the program.

“Ultimately, there’d be no way of measuring what a state is doing with phenomenal amounts of money," says Sara Rosenbaum, professor of health law and policy at George Washington University. "It’s just the absolute loss of any accountability for all this money that is meant to be public insurance. The only thing left is to eliminate public insurance, and then you no longer have Medicaid.”

As many as 13.8 million people (current enrollment is more than 52 million) could have been dropped from state Medicaid rolls by 2021 under the Ryan budget plan, according to a Kaiser analysis. Florida and Texas -- whose governors have pushed for a block grant since the Supreme Court decision last month -- could have dropped up to 930,000 and 1.4 million people under the Ryan plan, respectively, among the largest potential reductions in the country.

Medicaid Expansion: Which states have the most at stake?

A separate concern from critics is that Medicaid would be unable to quickly adapt to evolving economic conditions under a block grant because federal funding would be fixed rather than depend on state enrollment as it does now. Medicaid enrollment increases during the recession underscored the importance of Medicaid changing with the times. The program's coverage numbers increased by 14 percent (6 million) from 2007 to 2009, according to Kaiser estimates.

“Right now it’s an entitlement program, so individuals who are eligible are guaranteed coverage. With a block grant, that would change the entitlement nature of the program," says Robin Rudowitz, associate director of the Kaiser Commission on Medicaid and the Uninsured. "States could probably cut back on eligibility or impose waiting lists. That is particularly an issue during an economic downturn when more people would need it.”

Supporters of a Medicaid block grant counter that the proposal would make the program more fiscally responsible. The Kaiser Family Foundation estimated that the Ryan plan would have saved the United States a combined $750 billion. Florida and Texas would have saved $31 billion and $49 billion each.

Michael Cannon, director of health policy studies at a libertarian think tank, the Cato Institute, wrote last year that the Ryan plan would encourage states to crack down on fraud. It would also prevent taxpayer money from being shifted from one state to another, he said, because decisions to expand or reform would be based on state dollars rather than an increasing federal match.

"With a fixed amount of federal funding and fewer federal regulations, the states would be strongly encouraged to target their most needy populations and to reduce coverage for nonessential services," wrote Chris Edwards of the Cato Institute in a September 2010 issue brief. "The states would have an incentive to experiment with major reforms to their delivery systems, particularly consumer-driven reforms that could reduce costs and improve quality. A fixed federal block grant would be the mother of invention for state health care innovation and reform."

Now, no formal proposal for a block grant under the ACA has been proposed yet. U.S. Department of Health and Human Services Secretary Kathleen Sebelius has urged states to voluntarily expand their Medicaid enrollment, but few details have emerged about how the White House will work with states that are hesitant to do so.

Will the block grant push gain momentum? It's hard to know. The concept stalled before because of questions about its implementation, and analysts say those underlying concerns still haven't been resolved.

“The same sort of issues still apply. When you get down to the nitty-gritty of implementing a block grant, especially in the context of budget reduction, you run into the issue of how do you allocate those federal funds across states?" says Kaiser's Rudowitz. "There are states that spend more. Do you lock that spending disparity into place? Once you start to look at the real implementation, there are lots of issues.”