What Is Driving Congress to Potentially Change Medicaid?

URBANA, Ill., Jan. 6 -- The University of Illinois-Urbana-Champaign issued the following news release:

Richard L. Kaplan, the Peer and Sarah Pedersen Professor of Law at Illinois, is an internationally recognized expert on U.S. tax policy and retirement issues. In an interview with News Bureau business and law editor Phil Ciciora, he discusses the impetus behind congressional leaders' desire to change Medicaid, the health insurance program with more than 74 million enrollees in the U.S.

Republican leaders in Congress have recently declared that they want to "block-grant" Medicaid. What exactly does that mean?

Medicaid is a joint federal-state program that pays for the medical expenses of low-income people, including children and senior citizens in nursing homes. The federal government pays between 50 and 83 percent of each state's costs, with the exact percentage determined by each state's relative economic health when the program was started more than a half-century ago.

The remainder is paid by the state. But the key point is that there is no set cap on Medicaid's expenditures.

Block-granting Medicaid would involve the federal government determining in advance how much it will spend on Medicaid and then sending that amount to the states for them to use as they determine. Medicaid, therefore, would no longer be the open-ended entitlement program that it is now.

What is the impetus behind this proposed change?

There are several, both fiscal and philosophical. First, proponents of block-granting want to end the essentially unlimited commitment of federal resources to the Medicaid program. Second, this proposal is part of a larger effort to "devolve" power from the federal government to the states rather than have a largely one-size-fits-all program. For years, states have claimed that they could do a better job providing health care to their citizens without all of the federal mandates that presently accompany the federal money.

Finally, the recent significant expansion of Medicaid under the Affordable Care Act makes Medicaid an especially tempting target to those who dislike the health care law more generally.

How would the amount of the block-grant be determined?

That, indeed, is the single biggest unknown.

In 2012, House Speaker Paul Ryan proposed sending the states an amount set in advance with no consideration as to how many Medicaid enrollees a state has. The states would then determine which health care services they would cover with those funds plus their own tax revenues. For example, a state might decide to spend more on prenatal care for low-income infants and less on nursing home bills of older people. That approach is only one example of the sort of medical service prioritization that a state might undertake in response to block-granting.

Last year, Republican leaders proposed a slightly different approach that would determine the block-grant amount as a specified amount per Medicaid enrollee. In this version, a state that expanded its Medicaid eligibility criteria would receive more funds from the federal government, but the amount per person would still be set in advance. This approach is somewhat akin to how some private managed care plans pay health care providers under so-called "capitated" arrangements - namely, a fixed amount per person to cover all health care services that person receives.

How might states respond to this change?

The answer to that question will depend on whether the block grant amount is affected by enrollment and what value is assigned to various medical services. Thus, some states might reduce the number of people they allow into Medicaid by restricting the eligibility criteria. Other states might use managed care arrangements to shift the cost burden to the plans that administer those arrangements. Other states might restrict what medical services they will cover. Several years ago, Oregon estimated the cost of each medical service and then ranked those services according to their perceived medical value. It then tried to cover only those services it could afford within a predetermined budget.

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