Most Republicans in Congress want to turn Medicaid into a block grant program. That may not happen, but the possibility is real enough that it’s worth thinking about how such a massive change might play out. One way to do that is to think back to the last time Congress converted a federal-state entitlement into a flat block grant to states.
The 1996 welfare reform law ended cash assistance for the poor as an entitlement, as was suggested by the program’s new name, Temporary Assistance for Needy Families (TANF). The new law set a time limit for eligibility and also set up work requirements. With the program turned into a block grant, states enjoyed new flexibility for redesigning their programs. Many copied the efforts of states that had already received federal permission to experiment, most notably Wisconsin.
There’s no question that block-granting welfare succeeded in lowering caseloads. By 2006, the public assistance program had 10 million fewer recipients than in 1996, a drop of well more than half. Some of that was due to improvements in the economy, but declining welfare rolls became an annual occurrence, regardless of the economic climate in a given year. The percentage of single mothers who were working increased dramatically.
The 1996 law also changed the financial incentive for states. Where they previously tended to expand coverage because the federal government would pick up half the cost, now they were on the line for any budget increases. But equally important, any savings they found would remain in their own hands, rather than having to be split with Washington. And there was no “race to the bottom” in providing coverage, as many had predicted. Maintenance of effort requirements, mandating states to spend at least 75 percent as much on benefits as they did before passage of the 1996 law, kept TANF benefit levels from falling precipitously.
Policymakers hope that the same sorts of changes can bring about real savings in Medicaid. But the TANF story also contains enough warnings to make the current crop of state leaders nervous. The percentage of poor families who receive assistance has gone down, and the number of people who are out of the program and unemployed has gone up. Congress has gradually weakened one of the initial goals of the law, which was a requirement that half of TANF recipients work. “States have figured out all kinds of tricky ways to gut the work requirement,” says Ron Haskins, who helped craft the 1996 law as a Capitol Hill staffer. “There’s virtually no work requirement.”
The dollar value of federal TANF grants, meanwhile, has plummeted dramatically. The block grant was capped and not adjusted for inflation. The federal share is now worth only about two-thirds its 1996 value in real terms. This could be an even costlier dynamic for states under Medicaid. Health costs tend to rise faster than inflation. Caseloads also go up during recessions and as the poverty level rises. “States would wind up either having to reduce the number of things that are covered, or they would cut people off, or both,” says Haskins, now a senior fellow at the Brookings Institution.
Medicaid is already swallowing up significant shares of state budgets, while crowding out other spending at the county level in many places. Turning the program into a block grant would certainly drive up both state and local costs.
House Republicans have made plain their appetite for turning Medicaid into a block grant. The Senate is a bigger question. With Health and Human Services Secretary Tom Price in favor of the approach, governors and other state officials need to prepare for its possible enactment. It will be their job to talk Congress out of leaving them responsible for a crushing share of the Medicaid burden.