Can States Block Grant Medicaid if Congress Doesn't? It's Complicated

Mar 6, 2017
Originally published on March 14, 2017 3:24 pm

This story has been updated on March 7, 2017.

Missouri State Senator David Sater is looking for ways to reduce the amount of money his state spends on Medicaid, because, as he sees it, “the Medicaid program is eating out lunch right now.”

His idea? To voluntarily cap the amount of Medicaid funding coming from the federal government. 


Sater has proposed a state bill (SB 28) that echoes a proposal under discussion nationally. In the debate over replacing the Affordable Care Act — also known as Obamacare — congressional Republicans have suggested changing how the federal government funds Medicaid. They’d pay lump sum “block grants” to the states instead of providing unlimited matching funds. Whether this happens or not on a national level, Sater wants Missouri to change to a block grant, regardless.

[UPDATE March 7, 2017: The American Health Care Act, the House GOP proposal to replace the Affordable Care Act released hours after this article was originally published, calls for changing Medicaid's funding structure to per capita caps. Those caps are similar to block grants in that they would provide a lump sum to states, but differ in that the lump sum amount is determined per Medicaid enrollee. There is also language in Sen. Sater’s bill in Missouri that changes to Missouri’s Medicaid program “may include capped per capita allocations.”]

Currently, states and the federal government share the cost for Medicaid, the public health insurance program for the nation’s poor, young and disabled. Missouri is projected to spend more than $1.5 billion from the state’s general revenue fund on its portion of the program next year.

And because Medicaid is an entitlement program, that number can be unpredictable. No matter how many eligible Missourians get sick and need care, “we’re on the foot for the bill,” Sater says.

Each state runs its own Medicaid program, but they have to follow certain federal requirements on what and who needs to be covered. In return, the federal government picks up at least 50 percent of the tab. In Missouri, combined federal and state spending on Medicaid is projected to top $8 billion next year, close to one-third of the state’s operating budget.

That proportion is pretty common across the U.S. and many state legislators around the country, including Sen. Sater, want to bring that spending down.

Sater’s bill would compel Missouri to ask for a block grant, regardless of what Congress does. It would do so by requesting a waiver, which would also make it easier to add things like work requirements, copayments and to make other tweaks that could save the state money.

“It would give us more freedom to institute a Medicaid program that would be better for Missouri citizens and not necessarily what is best for the citizens of New York City,” Sater says. 

Block Grant Test Case: Rhode Island

Block grants are not a new idea. Ronald Reagan called for Medicaid block grants in his first address before a Joint Session of Congress in 1981, and Republicans have called for it several times since.

But Congress never block granted the program under Reagan, and there’s a chance it won’t this time either. If that’s the case, is it even possible for a single state like Missouri to get a block grant on its own? There is some precedent here, in Rhode Island.

Back in 2009, in the waning days of the George W. Bush administration, Rhode Island agreed to a hard spending cap on its Medicaid program in exchange for more authority to make tweaks without seeking federal approval.

Eighteen months later, Rhode Island Medicaid was reported to be $1.1 billion under its allotment.

“That’s pretty remarkable for a government program,” says John R. Graham, Senior Fellow at the Independent Institute, a California-based think tank that advocates for free-market health care reforms. 

While Rhode Island’s program wasn’t technically a block grant — the term used was ‘Global Waiver’ —  Graham says it does provide a model for how Medicaid block grants could work. A series of editorials in The Wall Street Journal and Forbes argued the same.

And Graham says Rhode Island’s program was the kind of thing everyone should be thrilled about: the state saved money, patient outcomes were good.

“The real question about the Rhode Island experience is: why didn’t that sweep across every state within the next few years?” Graham says.

But Judith Solomon of the progressive think tank Center on Budget and Policy Priorities say the Rhode Island story isn’t that simple. In 2011, Solomon co-authored a paper titled, Rhode Island’s Global Waiver Not a Model For How States Would Fare Under a Medicaid Block Grant.

“It wasn’t a block grant and the state didn’t save that much money,” Solomon says.

Actually, Solomon says individual states can’t even get a real block grant without a federal overhaul; Medicaid’s matching funding structure is law. Instead, Rhode Island’s waiver kept the matching funds but capped how much the state and federal government could spend, combined.

And that cap, “was set at a level that was much higher than Rhode Island predicted it would spend. So there was essentially no risk or danger from the cap,” Solomon says.

Block Granting Medicaid in Missouri?

In Missouri, the risk is potentially much higher. Earlier this year, newly-elected Missouri governor Eric Greitens proposed cuts to Medicaid that could have booted 20,000 disabled and elderly from certain nursing home and in-home care programs.

Greitens has since asked legislators to fund the program with extra funds the state received from a legal settlement with tobacco companies. But critics of block grants worry the writing's on the wall for what programs will be cut if the capped funding of Medicaid block grants results in cutbacks to the program. And what if there’s a public health emergency the lump sum didn’t plan for?

Sater says his bill allows for flexibility to ask for more funding from the federal government each year to account for factors like inflation in the price of care, increased enrollment, economic disasters and “things that are out of our control.”

“It can be adjusted [according to] what the conditions of the state are,” Sater says.

Even if the bill passes the legislature, it would still take years and close to $1 million just to apply for a block grant, and the federal government could still say no. But supporters of block grants are hopeful because the nominee to head the federal Centers for Medicare and Medicaid Services, which would make the decision on the waiver, is Seema Verma. Verma helped lead the state of Indiana through its own waiver process under then-governor Mike Pence.

Sen. Sater’s legislation is SB 28, you can follow its progress, here.

This story was produced by Side Effects Public Media, a news collaborative covering public health.

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