Trump wants to change Medicaid funding; could his ideas work?

Medicaid, which has provided safety net health care for millions of Americans with low incomes since 1965, pays for medical care for about 75 million people in the U.S., including almost two-thirds of those in nursing homes.

You likely know someone who benefits from Medicaid. It could be someone whose nursing home care is paid by Medicaid, even if that person at one time had retirement savings, a home and a good income. The costs of long-term care are such that, if a person was not poor when he or she became disabled or old, there’s a good chance that he or she will soon become poor. Medicaid pays for about six million people in nursing homes.

Medicaid also pays for medical care for about 10 million children and adults. You might know a young adult who is covered by Medicaid and who grew up with a diagnosis like cystic fibrosis or kidney disease that made it impossible to work as an adult.

Medicaid accounts for about 17 percent of the nation’s health care expenditures in 2015. In 2015, the government spent about US$532 billion on the program.

President Trump and other GOP leaders not only want to repeal the ACA but also to change Medicaid’s funding mechanism to something called block grants. Trump believes the change will save the federal government billions of dollars, and that could be true.

A study presented Feb. 6 to Congress by Avalere Health, a D.C.-based health care consulting firm, forecast savings of $150 billion by 2022. But a switch to block grants could also leave millions of poor people without insurance, or it could lead to cutbacks in services they receive.

As a social worker and instructor who has worked with and taught about Medicaid and other health policy systems including block grants over the past 25 years, I can say that going to block grants for Medicaid will represent a disruptive change. Looking at how block grants have affected a long-standing poverty alleviation program shows that there is some risk involved.

Block grants 101

Block granting is a structure of federal funding in which a set sum of money is allocated to states within a period of time, for use in the way the states see fit to meet a specified need.

Block grant funding for Medicaid would differ significantly from how Medicaid is funded now. For the most part, Medicaid now operates as either a negotiated fee-for-service system or a monthly rate per Medicaid enrollee. The federal government pays a portion of the expenses, and state government pays the other portion.

Many in the GOP support the block grant plan, citing block grant funding that has been used for Temporary Assistance to Needy Families (TANF). In the TANF program, states are allocated an established amount of funding to “to help needy families achieve self-sufficiency.” States design and implement programs, with minimal federal guidelines, to achieve their TANF goals.

Some states spend more funding on basic assistance and work supports, while other states spend more funding on child care and tax credits for working families with low incomes.

Some see the variation in the use of funds as a strength while others see it as ineffective. The 2014 GOP House report indicated TANF “is widely seen as the most successful reform of a welfare program.”

Depending on how you view the numbers, that could be true.

Caseload levels for cash assistance fell from 5.1 million households in the 1980s to 1.9 million households in 2010. Some point to those numbers as evidence of fewer families living in poverty.

Block grants 102

There’s more to that story, however. Others see TANF as a failure, and they cite the structure of TANF as a block grant as the cause.

Viewing the lower TANF caseloads as evidence of less need or poverty may not be accurate, because TANF caseloads continued to decline even in times of recession when poverty levels increased.

Thus, lower TANF caseloads may not actually be tied to less need but instead to families being unable to receive benefits due to changes in TANF structure.

It’s hard to know for certain whether the switch to block grants is responsible, but the rate of potentially eligible TANF recipients receiving TANF assistance has fallen from 86 percent in 1992 to 36 percent in 2007. Meanwhile, the number of children living in deep poverty (income less than 50 percent of the federal poverty level) in the U.S. has risen from 1.5 to 2.2 million between 1995 and 2005.

Those families living in deep poverty are now less able to count on TANF for assistance like they did in 1995. Then, 61 percent of children living in poverty would have been in deep poverty without TANF assistance. More recently, only 24 percent of children living in poverty would be in deep poverty without TANF assistance, making it appear that TANF is no longer serving the families with the most need.

When budget shortfalls occur, block grant money looks tasty

And, many who view TANF as a failure blame the block grant system, precisely because states have leeway to use TANF funding according to what they deem most appropriate. States have shifted away from spending the majority of their allocated funding on the core functions of TANF, including basic assistance, child care and work-related supports.

Instead, they spend money in areas such as child welfare/protective services and and pre-K programs, which are normally funded by states. In essence, the states use their federal dollars for budget shortfalls in other areas.

These services, while important, are not included in the core functions of the TANF program. States are spending about half of TANF funds outside the core function areas .

For example, Texas spent 38 percent of TANF funds on Pre-k and Early Headstart in 2015. Half of TANF funds in Georgia were spent on child welfare/protective services in the same year.

In addition to the issues with usage of federal dollars, the federal TANF block grant funding does not include an adjustment for inflation, so it has lost one-third of its value since 1997. States are now being asked to provide TANF services with less funding.

Applying lessons learned to Medicaid

Medicaid is a much larger program than TANF, and the effects could be much larger. About $476 billion was spent on Medicaid services in 2014, meaning the financial risks are much higher depending on how states manage their block grant funds.

With the emphasis on more flexibility and less federal government oversight, the federal government could move away from federal regulations for Medicaid and allow states to have the maximum control over service provision systems.

While this could lead to innovation, it could also put some vulnerable citizens at risk. The needs of the most vulnerable in health care coverage systems, the chronically ill, the disabled, the elderly, are often the most expensive to meet. States with the lowest budgets for health care to combine with federal block grant funding might experience deep cuts in Medicaid services, affecting the health of many.

The poor could be very, very vulnerable

There are few who question that the move to Medicaid block grants would save the federal government money. The federal government will save the most money by the establishment of Medicaid block grants that don’t fluctuate in funding levels due to the economic environment or with greater demand, like in an epidemic.

States, though, will have to either budget to plan for those circumstances or cut services when the need gets too high. It’s this last point that could create a shift in the fundamental ideology behind Medicaid as an entitlement program, which guarantees certain benefits to particular groups of people.

The transition of Medicaid to a block grant system may give so much flexibility to states and create a funding system so undependable in times of crisis that Medicaid can no longer be considered a true entitlement or a safety net. As with the TANF program, it will be the vulnerable who stand to lose the most.

This article was updated on Feb. 14 to indicate the figure regarding government spending on Medicaid includes federal and state money.