Block Grants Are Not The Solution to High Medicaid Spending

March 26, 2020 - COVID-19 demonstrates why block grants are a faulty method of controlling Medicaid spending, experts from the Robert Wood Johnson Foundation argued.

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Although the words “block grant” are found nowhere in the announcement of Healthy Adult Opportunity, the program functions as a targeted block grant for certain populations. The state would receive a certain amount from the federal government based on per capita Medicaid spending and, in exchange for a capped income, the states would get more flexibility on aspects of their Medicaid program like eligibility.

Proponents of the block grants argue that present federal matching does not incentivize states to lower spending, as states that spend more could receive more. Additionally, these individuals say that states currently do not have enough flexibility to lower spending in a significant way, if they wanted to do so despite the opposing incentives.

However, experts from the Robert Wood Johnson Foundation (RWJF) dispute the idea that block grants will offer the right incentives and the appropriate funding.

READ MORE: Block Grant Complexity, Vagueness May Limit Medicaid Uptake

In a recent brief, these experts outlined three problems with block grant and per capita proposals, particularly in the context of coronavirus:

• It is difficult to calculate the aggregate growth rate
• Medicaid spending per capital has not been exorbitant
• The growth rate for Medicaid spending per capita also has not been exorbitant

Calculating aggregate growth rate is difficult for two reasons.

First, even during a typical healthcare season, it is challenging to calculate how will be required to cover low-income beneficiaries.

Second, if the aggregate growth overestimates potential Medicaid spend per capita, then the main purpose for the model—to save the federal government from excessive payments to Medicaid programs—would evaporate as the block grant accomplished the very thing proponents want it to fix.

CMS recommended using the consumer price index, the medical element of it, (CPI-M) and adding 0.5 percent to calculate the per capita growth rate.

READ MORE: CMS Releases Medicaid Block Grant With Drug, Benefit Flexibilities

However, the experts noted that CPI has been well below the regular Medicaid spending for Medicaid beneficiaries—before the coronavirus outbreak. In 2019, Medicaid spending growth was 2.9 percent and projected to rise in 2020.

While this would accomplish the  goal of lowering Medicaid spending, it could very well leave beneficiaries with cheap, poor quality care or lead Medicaid programs to disenroll certain populations.

Furthermore, as social distancing, instigated by coronavirus community spread, could potentially usher us into a recession, Medicaid enrollment could grow. This was not factored into CMS calculations for the Healthy Adult Opportunities model.

CMS could adjust its per capita growth rate in the future, the researchers said, pointing to Tennessee’s proposal which ties per capita cap growth to the CBO’s Medicaid spending projections.

“This would at least be consistent with CMS and CBO projections,” the experts conceded. “But if Medicaid spending per enrollee instead grew at the low rates of the past decade, it would be relatively easy for a state to save money, which it could then split with the federal government. In this case, however, the federal government would be spending more than it would have without the block grant or per capita cap policy.”

READ MORE: TN Is First State to Seek Block Grant to Lower Medicaid Spending

The experts also pushed back on the concept that the current Medicaid structure incentivizes exorbitant spending, the primary cry of block grant proponents.

Contrary to these beliefs, the RWJF experts said, most evidence points toward Medicaid spending being lower than private healthcare spending.

Researchers in a separate report, cited by the RWJF authors, studied whether the Affordable Care Act’s state and federal health insurance marketplaces had effectively lowered prices across private healthcare by introducing competition from Medicaid. While the researchers found that the ACA marketplaces were slightly more expensive, Medicaid was around 13.5 percent lower than private health insurance for individuals with similar demographic features.

Lastly, not only has per capita Medicaid spending not been expensive, but the growth rate of per capita Medicaid spending has also been low, the RWJF experts said.

From 2010 to 2013 and from 2015 to 2018, Medicaid spending growth per enrollee was lower than private health insurance and even slightly lower than Medicare’s spending growth per enrollee.

State Medicaid programs have found ways to keep costs low, even with the low incentives, using methods such as care management and risk stratification.

“Caps on spending growth could too easily result in reductions in coverage and benefits because of budgetary pressures when the nation still has 32 million uninsured people,” the experts said. “These caps are particularly harmful in times like today, as the nation is trying to cope with the coronavirus.”

Other experts have likewise voiced concerns about the Healthy Adult Opportunity, both as a per capita payment and as an aggregated payment cap.

In order to make per capita Medicaid spending caps work, states would have to have savings of as high as six percent.

“Things like a closed formulary reduction and eligibility reduction with prior provider payments. There is actually the potential that in some states, if they did this, they could reduce the number of people covered, they could reduce benefits, things like that,” Chris Sloan, associate principal at Avalere, told HealthPayerIntelligence. “All of those would be negative for beneficiaries and providers participating in the program.”

At the time of the interview, before coronavirus had reached community spread in the US, Sloan projected that no state would adopt a block grant to manage Medicaid healthcare spending.

“Just given the complexities, given you need somewhat of a unique political situation for this to make sense, that’s where we are right now,” Sloan said.

With still only one state application pending, time will tell whether the emergence of COVID-19 in the US makes any states change their minds on the Healthy Adult Opportunity.