Wednesday, May 25, 2011

Making Sense of Medicaid Block Grant Proposals

Changing Medicaid from its historical open ended federal funding into a block grant is a hot topic these days, both in Washington DC and in many state capitols, including Pennsylvania.  Medicaid is the main source of health care and long term care services for millions of seniors, as well as younger disabled persons and children. Converting Medicaid funding to a block grant could have an enormous impact on the health and welfare of Pennsylvania families.  

The Medicaid program is our ultimate safety net for low income people who cannot afford health care. Currently, there are more than 2 million Pennsylvania enrollees (50 million nationwide) most of whom are seniors, the disabled, and children. Nationally, the federal government is expected to spend $275 billion on Medicaid in 2011, with states contributing somewhat less. That is a lot of money and it is being suggested by some that changing Medicaid to a block grant can limit the program’s costs in the future. 

This article will explore just what the politicians and conservative think tanks are talking about when they suggest that federal Medicaid support to the states be converted to block grants.    
What is a Medicaid Block Grant
Each state administers its own Medicaid program. But in Pennsylvania and most other states a majority of the funding for Medicaid comes from the federal government. Since Medicaid began in 1966, it has been an open-ended entitlement program. The states are required to cover certain federally designated individuals and comply with federally mandated standards. States that want to vary from the federally mandated standards can ask for a waiver from the federal rules.  

In return for state compliance the federal government gives the states matching funds to cover the individuals included in the state Medicaid program (both the mandatory groups and various optional groups that state decides should be included). The amount of the match varies from year to year, but in general Pennsylvania receives about 60% of its Medicaid funding from the federal government.

Some individuals, such as seniors who need nursing home care but have no money to pay for it, are guaranteed coverage. The state must cover them without imposing any enrollment caps or waiting lists. As noted, states have the option to expand Medicaid to cover other non-mandated groups with federal funding support.  

Currently the federal matching funding is open-ended. This means that the federal government pays if a state decides to cover a new optional eligibility group, or if a state’s Medicaid rolls increase due to a recession or a natural disaster or an epidemic. The federal government pays no matter how much the state program costs.  For example, in December 2007, Pennsylvania had 1.89 million Medicaid recipients. By June 2010 the recession had caused that number to expand to 2.16 million. Federal matching payments to Pennsylvania increased accordingly.

Block grant funding would dramatically change this arrangement. Instead of being open-ended, federal funds would be capped at a certain level. Under the block grant proposal passed by the Republican US House of Representatives on April 15 (part of the budget proposed by Representative Paul Ryan), Medicaid block grant funding would begin in 2013 with federal funding set at the 2012 level plus annual increases of about 4% annually (to account for inflation and population growth). A significant aspect of the proposal is that states would no longer be subject to mandatory federal standards in determining and awarding eligibility and benefits.  

Since federal funding would be capped, states and their residents and health care providers would bear the risk of any need for increased Medicaid funding due to recession or other factors. Federal matching funds would no longer rise and fall with the amount the state spends. A state would be free to expand its Medicaid program, but it would have to come up with 100 percent of the money to cover any expansion.

Proponents of the conversion of Medicaid to block grant funding suggest that open ending funding encourages states to gorge themselves on federal funds and pass that cost on to taxpayers of other states and future generations. They argue that the current system of easy money leads to fraud and abuse. (Under block grants, states would keep 100 percent of the savings achieved from rooting out fraud and abuse rather than 50% or less under the current program). And proponents of privatization argue that Medicaid crowds out the private health coverage that millions of people currently on Medicaid would be likely to obtain if Medicaid eligibility was tightened and they were forced to pay for health care on their own.  

According to the Congressional Budget Office, the Republican House’s block grant plan would reduce federal Medicaid funding by 35 percent in 2022 and by 49 percent in 2030, compared to the current system. (See, Congressional Budget Office, Reducing the Deficit: Spending and Revenue Options, page 39).

Critics suggest that a shift to block grants will reduce federal funding but will not reduce the underlying cost of providing health care to the old and disabled poor.  They argue that it would just shift costs to states, localities, health care providers, and families.  The opponents warn of potentially dire consequences.

To compensate for the steep reductions in federal funding, states would either have to contribute far more in their own funds, or, as is much more likely, exercise the new flexibility under the block grant to cap enrollment, substantially scale back eligibility, and curtail benefits for seniors, people with disabilities, children, and other low-income Americans who rely on Medicaid for their health care coverage.… [For example] Because the Ryan plan would require such deep cuts in federal Medicaid funding, it would inevitably result in less coverage for nursing home residents and shift more of the cost of nursing home care to elderly beneficiaries and their families.  A sharp reduction in the quality of nursing home care would be virtually inevitable, due to the large reduction that would occur in the resources made available to pay for such care. Center on Budget and Policy Priorities, May 3, 2011.

Medicaid funding is of great significance to families that include an individual in need of nursing home care since Medicaid is the primary payment source for 62% of Pennsylvania’s nursing home residents.

Implementing Block Grants at the State Level through Waivers

Only Republicans voted in favor of the Medicaid block grant proposal that was approved by the House of Representatives on April 15th and it is generally assumed that the proposal will not pass the Democrat controlled Senate. But block grant like regimes may still be adopted by the states under the waiver rules. On May 31, Washington State Governor Christine Gregoire signed legislation (SB 5596) requiring the state Medicaid office to submit a request for a Medicaid block grant waiver by October 1, 2011.  

One state, Rhode Island, has been experimenting with a variation of a Medicaid block grant for over two years. Since Gary Alexander, the primary steward of Rhode Island’s so-called “Global Medicaid Waiver” is now Governor Corbett’s nominee for Secretary of Department of Public Welfare, Pennsylvania will likely be considering a block grant type waiver in the near future.    

The Results in Rhode Island

With Mr. Alexander’s emergence on the Pennsylvania scene, it seems appropriate to review what the Global Medicaid Waiver has accomplished in Rhode Island.  But the fog of politics makes it hard to find an objective analysis of the Rhode Island results. A recent article in the Providence Journal gives a good summary for Pennsylvania policy makers and other stakeholders in the Medicaid system.   

By Philip Marcelo, The Providence Journal State House Bureau, May 16, 2011
A Medicaid agreement reached nearly two years ago between Rhode Island and the federal government continues to be praised as a model for other states and the country, even as Rhode Island’s new governor questions how much it has actually saved.
Republican governors in New Jersey and Kansas cite Rhode Island’s Medicaid agreement, known as the “global waiver,” as a model for Medicaid reforms they say are needed to close budget deficits. So, too, do Republican-dominated state legislatures in Minnesota and Texas, according to national policy analysts.
Leading conservative thinkers argue that the Rhode Island waiver shows how governments can save money by converting federal Medicaid spending into a block grant — a key piece of the federal budget recently passed by the U.S. House of Representatives.
But Rhode Island’s role in the debate over the nation’s primary health-insurance program for the elderly, poor and disabled comes as Governor Chafee, an independent, continues to cast doubts as to whether the agreement has actually produced the promised savings.
“I have not found those numbers to be true. It is significantly lower,” Steven M. Costantino, a former Democratic state lawmaker who is now Chafee’s secretary of Health and Human Services, says about recent assertions.
Gary Alexander, Costantino’s predecessor under the former governor, touted approximately $100 million in savings to date in a recent report for the Galen Institute, a conservative think tank.
John R. Graham, a policy expert at the Pacific Research Institute, another conservative think tank, asserted in a Journal op-ed piece in April that the state saved nearly $1.3 billion through the first 18 months of the five-year agreement. (That figure represents the difference between actual and budgeted Medicaid spending for Rhode Island in that period.)
The Chafee administration, meanwhile, says it has been able to confirm the state has saved at least $44 million in general revenue costs through the waiver. Those savings come from shifting Medicaid costs to the federal government, according to Frederick J. Sneesby, communications officer for the state Department of Health and Human Services.
Costantino says his office has been working on an analysis to clarify what he sees as myths associated with the waiver. He also said the administration may enlist an independent group to conduct its own study in an effort to remove the politics from the discussion.
“To say that something is working in Rhode Island that isn’t a block grant, and that is achieving savings that aren’t substantiated at this point, is not a correct leap in judging the Medicaid block grant/waiver discussion,” he says. “There has been a lot of politicizing of it and that has been really unfair. At this point, there is not a 100-percent answer on this question, unfortunately. And there might never be.”
Ex-Gov. Donald L. Carcieri, a Republican, obtained the global waiver — formally known as the “Global Consumer Choice Compact Waiver” — in January 2009, in the waning days of the Bush White House.
The agreement waived many of the strict regulations that came with the federal government’s portion of Medicaid, giving Rhode Island greater flexibility in designing its Medicaid program. In exchange, the Ocean State promised to live under a $12-billion spending cap between 2009 and 2013.
How much was expected to be saved is unclear. The Carcieri administration offered no five-year projected savings figures, according to Chafee officials.
But, bolstered by recent conservative analysis on the waiver’s savings to date, Republican state leaders have expressed interest in similar agreements.
New Jersey Gov. Chris Christie, for example, has suggested he could pare nearly $540 million from the state’s approximately $4.4 billion Medicaid program through a global waiver like Rhode Island’s that caps the state’s federal Medicaid allotment.
Kansas Gov. Sam Brownback has written to the Obama administration expressing hope that the two sides could develop a global waiver to establish “a more efficient, effective and sustainable Medicaid program” for the state.
Global-waiver supporters believe that such agreements can dramatically rein in federal and state Medicaid spending.
Under the current system, states are encouraged to increase Medicaid spending because they receive an unlimited match from the federal government for every dollar they spend toward Medicaid, they say.
“It’s about breaking that incentive for the state politician to spend more and more,” said Graham, of the Pacific Research Institute. “States are destroying themselves by doing this.”
But other policy experts urge caution in looking to Rhode Island as a model, particularly for federal-level reforms like what the House budget proposes.
The Rhode Island waiver did not reduce the amount of federal funds the state would have otherwise received for Medicaid, notes Judith Solomon, an analyst for the Center on Budget and Policy Priorities. In a March study, Solomon said the $12-billion cap set for Rhode Island in the waiver was “far above” the state’s $10.8 billion anticipated spending level over the five-year period.
The waiver also allowed the state to shift certain state health costs to the federal government. The House budget proposal, she said recently, “is a very different animal.”
Costantino, Chafee’s Health and Human Services Secretary, agrees, although he does still think there is value in the waiver:
“Did the global Medicaid waiver get the state to start thinking about rebalancing systems? Yes. Because otherwise I’m not sure we would have went in that direction. Could we have done some of the things in the waiver without the waiver? In many of the cases, yes.”
How closely these proposals in New Jersey, Kansas and elsewhere come to mirroring Rhode Island’s is unclear at this point.
Republican politicians have offered few specifics, and no state has yet submitted a formal application to the federal government to begin the waiver process. “They just seem to be saying global waiver, and that magically saves money,” said Solomon, of the Center on Budget and Policy Priorities. “It’s hard to know what they mean until there is a concrete proposal.”
Graham, of the Pacific Research Institute, does not believe any state will introduce any such application this legislative session. President Obama’s secretary of Health and Human Services, Kathleen Sebelius, he noted, does not appear to be a strong supporter of such comprehensive Medicaid waivers.
However, he said he does not believe the public debate over Rhode Island’s precedent-setting waiver will disappear.
“What you’re going to see is campaigning and ‘bully-pulpiting’ from Republican governors and their secretaries of health and human services,” he said. “So long as [Rhode Island] is perceived as successful, that puts gas in the tank to campaign for other states to have a more general waiver.”
Here’s hoping our state legislators are able to find a path through all the noise generated by ideological bias and move forward in a sensible and pragmatic direction on the issue Medicaid block grants.  The future health and welfare of Pennsylvania and its citizens may depend on their wisdom. 

Additional Reading

Here are some other perspectives on the Medicaid block grant issue from across the political spectrum: 

A New Vision for Medicaid (Douglas Holtz-Eakin - American Action Forum)

Protecting the Rights of Low-Income Older Adults (National Senior Citizens Law Center)

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