Report Revives Potential for Massive Medicaid Cuts Through Block Grants

A plan to fundamentally change the way the federal government funds Medicaid — which could lead to hundreds of billions in cuts — may be back on the table after seemingly dying two years ago.

The Trump administration is currently mulling ways to convert Medicaid to a block-grant system, Politico reported late last week, reviving a fight that caused a serious backlash from skilled nursing and other long-term health care providers over the summer of 2017.

Three sources told Politico that officials are currently working to devise guidelines for a switch to block grants, which the political news site said would achieve “a longstanding conservative dream” of reducing overall Medicaid outlays.

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Unlike the purely federal Medicare program, Medicaid functions as a hybrid in which states receive money from Washington but have more leeway over how their individual programs are run. Under a block-grant model, states would see a set amount of Medicaid funding per year — a serious contrast from the current model, in which state-level Medicaid programs receive open-ended reimbursements based on actual care needs.

If this sounds familiar, it’s because Congressional Republicans attempted to institute such a change during a legislative fight over the Affordable Care Act (ACA) two years ago. A proposal to convert states either to block grants or per-capita caps — set reimbursement amounts for each Medicaid recipient — would have slashed Medicaid funding by upwards of $770 billion.

This set off loud rebuttals from the American Health Care Association (AHCA) and other provider groups. Despite public perception of Medicaid as a social safety net program for low-income adults, the benefit actually forms the bedrock of most nursing homes’ financial stability, covering 62% of all residents according to 2017 statistics from the Kaiser Family Foundation.

While the ACA reform eventually died amid a public backlash, AHCA executive vice president of government relations Clifton Porter last fall classified 2017 as the toughest year of lobbying the trade group had ever experienced, and emphasized the dire nature of plans to cut Medicaid.

“We came pretty close to have $800 billion sucked out of the Medicaid program. I don’t care how you cut it, how you package it … at the end of the day, there would have been problems,” Porter said at AHCA’s annual convention in San Diego last October.

A spokesperson for AHCA reiterated that sentiment this week.

“Medicaid benefits for long term care are already insufficient in most states. Under block grants, some people who receive long term care may have their Medicaid benefits cut or lose them entirely,” the spokesperson said. “Vulnerable groups will be forced to compete for federal Medicaid dollars as well as state Medicaid matching dollars.”

A representative from LeadingAge — which represents non-profit senior care and housing providers — echoed AHCA’s concerns, warning that a combination of block granting and state-level balanced-budget requirements could result in beneficiaries losing coverage and reduced reimbursements to providers.

“For example, Medicaid coverage of nursing home care is now a federal mandate. With increased ‘flexibility,’ we might see states moving toward an enrollment cap on nursing home care, with waiting lists developing such as are now common for home- and community-based services,” the LeadingAge spokesperson said. “Because so much of Medicaid goes to long-term services and supports, we are concerned about potential cutbacks in our sector. States just would not be able to save enough money to meet the limits of a block grant by cutting back on other aspects of their Medicaid programs.”

Despite the Politico report, it remains unclear whether the administration has the authority to change Medicaid funding without amending federal law through legislation. Still, a spokesperson for the Centers for Medicare & Medicaid Services (CMS) told the publication that its leadership generally supports the idea of capping Medicaid disbursements to states.

“We believe strongly in the important role that states play in fostering innovation in program design and financing,” the spokesperson told Politico. “We also believe that only when states are held accountable to a defined budget can the federal government finally end our practice of micromanaging every administrative process.”

Department of Health and Human Services secretary Alex Azar has also expressed support for this type of Medicaid reform in the past.

“I have actually said before that looking at block granting, and empowering states to be fiscal stewards, can be an effective approach,” Azar said during Congressional testimony as part of his confirmation process in 2017, though he later added that “the devil’s in the details” that would need to be worked out through the legislative process.

There’s another important caveat to this discussion: The last legislative push to reform Medicaid came with the Republicans controlling both houses of Congress and the presidency. The Democrats retook the House in last fall’s midterm elections, and Porter extolled the benefits of divided government for the nursing home industry in his comments last fall.

“Republicans want to cut your jugular vein. And it’s called Medicaid. The Democrats want to cut your femoral artery. It’s called more regulation,” he said.

But shared power leads to more room for compromise.

“It’s good to have some check and some balance there where each is keeping the other honest on the issues that are important to us,” Porter said.

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