Trump advisor says Medicaid will become a block grant. What would that mean for Colorado?

Gov. Hickenlooper told the NYT that the plan would leave states carrying more of the costs and “force us to make impossible choices in our Medicaid program.”
7 min. read
Ambulances at Denver Health on Bannock in Lincoln Park.
Kevin J. Beaty/Denverite

The possible repeal of the Affordable Care Act has generated a lot of questions about what comes next. On his first day in office, President Donald Trump signed an executive order that gives administrators authority to grant exemptions and waivers to elements of the law that impose a "fiscal burden" on states or "penalties" on individuals.

In an interview with Sunday Today on NBC, White House advisor Kellyanne Conway said President Donald Trump wants to turn Medicaid into block grants to the states, an idea that Republicans in Congress have supported for some time.

What does that mean and what effect would it have?

It really depends on how much money Congress makes available, what conditions it puts on that money and how it's allowed to grow. In theory, you could have a block grant that provides even more money for health care, but that's not generally how block grants have worked.

Gov. John Hickenlooper told the New York Times that the block grant idea would leave states carrying more of the costs and “force us to make impossible choices in our Medicaid program.”

“We should not be forced to choose between providing hard-working older Coloradans with blood pressure medication or children with their insulin,” Hickenlooper said.

Marc Williams, a spokesman for the Colorado Department of Health Care Policy and Finance said "the devil is in the details." There just isn't enough information to do a real analysis yet.

"It’s not clear that a block grant would provide additional flexibility for the state," he said via email. "Block grants establish a base year financing amount for each state and then a fixed rate growth for federal spending. Congress could impose different types of restrictions; for example, the federal government could set a limit on how much to pay states per Medicaid enrollee, or how much total federal funding can be spent, without regard to how it is spent."

Without that kind of information, "it’s not possible to provide an analysis of the impact."

"Right now, there's not a plan on the table, and with stuff like this, the details really matter quite a bit," said Joe Hanel, a spokesman for the independent Colorado Health Institute. Most likely, "Colorado would be looking at more flexibility but less money."

The Medicaid expansion has played a big role in reducing the number of uninsured people.

As of December, there were 1,343,704 Coloradans on Medicaid, and of them, 452,923 got coverage because the Affordable Care Act expanded the criteria for who is eligible, particularly for low-income adults without children and for children aging out of the foster care system. The federal government picks up 95 percent of the cost of people covered under the expansion and half the cost of people who were already covered by Medicaid. The other 5 percent comes from the hospital provider fee, a fee collected on hospitals around the state.

In an op-ed in the Denver Post explaining their support for repeal, Colorado's Congressional Republicans downplayed the significance of the Medicaid expansion in expanding access.

"Of the 6.5 million people who gained health insurance through Medicaid, 70 percent were already eligible for the program prior to its expansion under the ACA," they wrote. "We can attribute the streamlined application and increased public awareness for these gains — neither of which will go away when we repeal Obamacare."

That's not the case for Colorado, though. Earlier this year, the Colorado Health Institute released a report on the first two years of the Medicaid expansion in Colorado. It found that nearly 90 percent of those who got Medicaid after the implementation of the ACA would not have qualified before. The "welcome mat" enrollees -- those who would have qualified before but hadn't signed up for whatever reason -- accounted for just 12 percent of people with new access to health care.

The Medicaid expansion also cost more than predicted -- $1.6 billion over the first two years as opposed to a projected $1.2 billion -- mostly because more people than expected signed up. The per person cost was actually lower than predicted. So far the federal government has covered all of the cost of the newly eligible and 50 percent of the cost of those who would have been eligible anyway. The state share for the newly eligible is set to grow to 10 percent by 2020.

Right now, Medicaid is an entitlement program, so whatever that cost is, the federal government will meet that commitment.

Block grants would change that.

Rep. Tom Price of Georgia, Trump's nominee for Secretary of Health and Human Services, is a proponent of the block grant approach to Medicaid as are many other Republicans. Over at Vox, Sarah Kliff looked at the likely impact of previous Republican block grant proposals and explained how it would be different than the status quo.

Medicaid is an open-ended funding commitment to cover a set percent of enrollees’ bills. When the need for Medicaid rises — like during a recession, or a particularly bad flu season — the federal government is committed to meeting it.

A block grant would limit the federal government's commitment.

Instead of paying a set percentage of each enrollee's bill, they would pay a specific amount to each state. It would then be up to the states to figure out how to best spend those funds.

Studies by the Congressional Budget Office found that block grant proposals typically allow for 3 percent annual growth. The average growth in Medicaid costs has been 7 percent a year, according to Vox. The proposal in the House 2017 budget would cut $7 billion this year and $169 billion by 2026, about a third of the entire program.

If you turn Medicaid into a block grant, Conway said, “you really cut out the fraud, waste and abuse, and you get the help directly” to beneficiaries.

In exchange for less money, states would have more flexibility in how they spend what money they get. There might also be public health targets they have to meet, but in the manner of their choosing. So for example, they might get to spend money on things like expanding behavioral health services or hiring dietitians to work with families instead of covering medical care directly.

Opponents of this idea are pretty skeptical they could get the desired results and keep costs low without dropping large numbers of people from coverage.

"The administrative costs of Medicaid are the lowest of any insurer in the country," Deborah Bachrach, who used to run New York's Medicaid program, told Vox. "You can't do the cuts through administration. And if more primary care and community-based services could save 30 percent, we would have done that already."

Historically, block grants have not grown along with needs.

In a 2015 study that looked at block grants going back to 2000, the Center on Budget and Policy Priorities found that all but one of 13 block grants for social services, health and housing had lost purchasing power when compared to inflation, in some cases by significant amounts. Taken together, block grants had declined by 27 percent over the 15-year study period.

"Block grants’ basic structure makes them especially vulnerable to funding cuts over time," the study authors wrote. "Block grants generally give state and local governments very broad flexibility in how to use federal funds, and those governments often use them in diffuse ways, making their impact hard to measure.  That, in turn, makes it easier for policymakers to look to block grants for savings, and it’s made block grants particularly vulnerable to funding reductions for years on end."

This is the bind that Medicaid could be in if it ends up working like other block grants have worked.

"Let's say Colorado gets $5 billion, and they put an inflator by consumer price index," Hanel said, using this number just for discussion purposes. "Well, the product that Medicaid buys is health care, and health care costs go up by a rate much higher than the rate of inflation."

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