States mull Medicaid block grants as ACA repeal, changes loom

Healthcare advocacy groups say a bill in the Missouri Senate that seeks to transform Medicaid into a block grant program would cut necessary funding for healthcare services for Missouri's most vulnerable citizens. But Republican supporters say it would give the state more flexibility and help it control runaway spending.

The same debate is playing out on a national stage. GOP lawmakers, including President Donald Trump, have embraced Medicaid block grants as a solution to growing costs. As Medicaid reform looks more and more like a potential reality, states are beginning to question if it's wise to forgo some federal funding in exchange for more control.

“It's a balancing act,” said Deborah Bachrach, a partner at Manatt Health and former Medicaid director of New York. “Is the flexibility so great that it's worth giving up federal dollars?”

Missouri Republicans aren't waiting around for the federal government to make a move. The legislation, Senate Bill 28, would direct Missouri's social services department to seek a global waiver from HHS to transform the state's Medicaid into a block grant program, which would be federally capped and adjusted for inflation, state gross domestic product, population growth and other factors.

A Senate committee heard testimony on the bill earlier this month and will soon vote to bring it to the Senate floor. At least two other companion bills have been filed in the House. Missouri Sen. David Sater, a Republican who sponsored the bill, argued that a block grant would bring personal accountability and responsibility to Missouri's Medicaid program.

But health and consumer advocacy groups that testified against the legislation fear it would force funding cuts for essential services provided to 800,000 low-income and disabled people covered by MO HealthNet. Missouri is one of the 19 states that didn't expand Medicaid under the Affordable Care Act. The Missouri Coalition for Community Behavioral Healthcare, Mental Health America of Eastern Missouri, the Missouri Health Advocacy Alliance and the Missouri AARP were among the 10 groups and one disability advocate that testified against the legislation.

The bill found an unlikely supporter in the Missouri Hospital Association, which represents 145 hospitals in the state. Spokesman Dave Dillon said it testified in favor out of support for finding a way to reduce costs and better manage care for a few “superutilizers” who are driving those costs. Missouri is facing a budget shortfall of $350 million and Medicaid accounts for a major chunk of the state's expenses, he said.

Missouri's Barnes-Jewish Hospital, SSM Health and St. Luke's Health System either declined or did not respond to requests for comment. Mosaic Life Care said it's too soon to know what position it will take on the bill.

“I think it's a solution looking for a problem,” said Sidney Watson, a St. Louis University healthcare law professor who testified against the bill. Most of the changes the state wants to make can be accomplished without moving to a block grant, she said, and the cuts would likely be dramatic.

Trump, House Speaker Paul Ryan and HHS secretary nominee Tom Price have all proposed giving states a fixed pot of money to run their Medicaid programs, while also cutting total spending.

Out of $9.6 billion in Medicaid spending in Missouri last year, $6.1 billion flowed from the federal government.

But the appeal of having full control over that money may fade. “Governors are looking at it closely, and even those who initially embraced it are digging deeper into what does it mean for my state?” Bachrach said. “From a governor's perspective, right away (it means) less federal dollars.”

That revelation is alarming lawmakers. In Virginia, both the General Assembly Republicans who oppose the ACA and the administration of Democrat Gov. Terry McAuliffe, a supporter of the healthcare law, agreed last week that block-granting the state's Medicaid program would put the state at a severe disadvantage in funding health services.

Chip Kahn, president and CEO of the Federation of American Hospitals, said in December that it would be difficult for hospitals to support the approach because it would mean Medicaid would be well-funded in some states and underfunded in others.

The federal government pays states a certain percentage of states' Medicaid expenditures based on criteria like per capita income. A block grant would cap the federal contribution. If something unexpected occurs, like a disease outbreak or an economic downturn, and the Medicaid enrollment jumps, federal dollars wouldn't expand to accommodate the rise in costs.

In 2015, Medicaid accounted for 28.2% of total state spending in fiscal 2015—the largest component, according to the National Association of State Budget Officers. Combined state and federal Medicaid spending was up 9.7% in 2015, totaling $545.1 billion.

Moving Medicaid to a block grant model would pose thorny questions for lawmakers, Bachrach said. If the federal contribution is fixed to a year like 2016, the 31 states that expanded Medicaid under the ACA and subsequently received more federal dollars would be at an advantage over those that didn't. If a state that didn't expand Medicaid later decides it wants to, federal funding won't expand to cover the state's newly eligible members. And with fewer Medicaid dollars to go around, stakeholders would be jockeying for funding. Governors will find that the nursing homes are fighting the hospitals, which are fighting the mental health agencies.

Still, some say the fears are unfounded. “The idea of a block grant doesn't in itself presume you are cutting it,” said Stuart Butler, a senior fellow at the Brookings Institution. “Part of the idea is to enable a state like Missouri to mix the (federal) money differently.”

But so far, most federal proposals that include the model would cut Medicaid significantly, counting on the efficiency achieved by states to generate a windfall in savings. The Center on Budget and Policy Priorities determined that Price's budget plan that included Medicaid block grants would cut funding to the program by $2.1 trillion over 10 years.

“If there is enough money there, block-granting in and of itself is not public enemy No. 1,” said Blake Lawrence, director of policy and legislative affairs at advocacy group Missouri Health Advocacy Alliance, which testified against the Missouri bill. But, he added, “People don't understand, when that money is out, there's no money left for anybody.”