Trump Administration Proposes Major Change to Medicaid's Funding Structure

The Department of Health and Human Services (HHS) will now give states the option to obtain a portion of their federal Medicaid funding via so-called "block grants." This potentially dramatic change is billed as a way to improve state flexibility in running Medicaid programs. Although beneficiaries with disabilities should not be directly affected, the change could result in significant service cuts for millions of adults who secured Medicaid coverage through the Affordable Care Act.

Since its launch in 1965, Medicaid has operated as an open-ended entitlement program, meaning it does not include any pre-set funding limits. It is a joint partnership between the federal government and the states: Each state runs its own Medicaid program with the help of matching funds from the federal government.

The Trump administration has been exploring options for block-granting Medicaid since last March. A block grant funding structure would end the open-ended nature of Medicaid’s federal-state partnership. Instead, states that choose the block grant arrangement would receive a pre-set amount of money in exchange for increased flexibility in how they administer their programs. 

The question of what increased program flexibility would look like is central to all debates surrounding block grants. Advocates of block grants—from the Reagan administration to former House Speaker Paul Ryan—have argued that block-granting is necessary to ensure the program's long-term funding stability. Disability rights advocates, among other groups, fear it is just a back-door way to slash benefits.

Announced on January 30, 2020, the new HHS plan, dubbed "Healthy Adult Opportunity," would allow states to apply for waivers to cover healthy adults under age 65 using a block grant.  This means that the states most likely to apply for the waivers are those that have not expanded Medicaid under the Affordable Care Act but may now do so given the increased flexibility in how to design their program, or those that have expanded Medicaid but wish to reduce costs. 

But funds designated to pay for services for children, pregnant women, and people with disabilities could not be block-granted.  Likewise, states cannot block grant services that are required under the Medicaid statute, such as emergency and hospital services. The Affordable Care Act—specifically its much-publicized 10 essential health benefits provision—significantly expanded this list of required services.

On the other hand, states have significant discretion when choosing to fund other services, for example, various prescription drugs and dental care. States that opt for a block-grant funding structure would likely impose cuts to these services. States that choose to block grant could also impose higher premiums and co-pays than those currently allowed under Medicaid, and as well as work requirements for beneficiaries, an effort that has largely been stymied in the courts.  Moreover, if enrollment in Medicaid dramatically increases due to a health crisis or a recession, states that received a pre-set amount of funding may not have enough money to cover everyone, resulting in additional cuts to services.

Opponents of the block grant concept contend it is illegal because only Congress can make such program changes, and litigation against the proposal is almost certain.  In addition, it is unlikely that a state could get a waiver before 2021, when there may be a new federal administration.

For more on the administration's block grant guidelines, click here.