GOP’s Medicaid block grant plan should trump other concerns

From the outset of his administration, President Trump has managed to keep the public debate focused on issues that seize our attention because their political symbolism is easy to grasp.  Who had the biggest crowd over the inaugural weekend?  Will we build a literal wall at our border with Mexico, or simply a metaphorical one?  Through Twitter, @realDonaldTrump has centered our civic dialogue on trending topics such as who voted illegally, who leaked fake news, and who fired Arnold Schwarzenegger from “The Apprentice.”   

These disputes have kept our eyes away from the complex, confounding, but massively consequential issues that deserve our prime focus. For pure policy stakes — in the hundreds of billions of dollars that it brings to the social safety net and in the millions of economically struggling families and elderly and disabled Americans it puts at risk of losing medical care — nothing trumps the president’s proposal to create block grants for Medicaid.

{mosads}His administration has consistently supported the idea, which has now appeared in concrete form in this week’s first draft of a “repeal and replace” of ObamaCare. 

Medicaid block grants seem at first glance like an obscure debate for the few policy wonks who care about federal funding formulas.  But the outcome of this particular fight in D.C. will reverberate across all 50 states for decades to come.

Shifting from “matching rates” to a block grant for Medicaid is not a new demand from the insurgent populist Trump, but the recycling of an idea that has been proposed by small-government advocates from Newt Gingrich to George W. Bush to Paul Ryan.  In January, Kellyanne Conway made it clear that they will form a centerpiece of the Trump administration’s health care policy, and they have appeared in what Trump called on Twitter “Our wonderful new Healthcare Bill.”  

Though they have garnered little attention in the campaign or even today, block grants would allow Trump to unwind the biggest gains that ObamaCare made for our most vulnerable citizens, radically reduce government investment in healthcare over time, force states to make even deeper cuts when the next recession comes along, but leave no political fingerprints.   

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Here’s a short primer on how Medicaid works today and why shifting to block grants would change it so fundamentally.  Across the nation, Medicaid serves 75 million people, including the elderly and disabled (about two-thirds of people in nursing homes pay for them with Medicaid) as well as families living near or under the poverty line.  Working under basic federal guidelines, states choose who to cover and what services to provide them, and pay a portion of the costs. 

Under the current funding mechanism of a matching rate, the poorer the state, the less the state pays toward Medicaid costs and the more the federal government pays.  New York and California, for instance, get one federal dollar for every state dollar that they spend, while Missouri gets $1.72 and Mississippi an even more generous $2.94. 

Why? This gives less affluent states, which already face the toughest budgeting choices, the fiscal breathing room to afford to cover these vital services, while still putting some skin in the game to keep their Medicaid programs efficient.  And for all states, it softens the impact of recessions on the social safety net. 

When the economy slows, more people become eligible for Medicaid.  Most of the costs of keeping state residents healthy during a downturn are borne by the federal government, and states can then focus their resources on the other vital services they provide.

The Affordable Care Act doubled down on the matching rate strategy.  The federal government paid for 100 percent of the expansion of Medicaid in its first few years, sliding down to 90 percent in 2020 and beyond. All of those federal dollars and the health services they provide may, of course, be taken off the table in a repeal and replacement of ObamaCare.

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But the proposal to block grant Medicaid would sharply cut federal aid and change state incentives.  

First, depending on the formula used to set the size of block grants, it could force immediate cuts in the states that have cast the widest safety net already.  States that expanded Medicaid under ObamaCare and in prior policies spend more per resident than other states do today, so if a block grant change tomorrow gives each state a fixed amount per capita, these states would have to eliminate health coverage for many recipients to afford the new one-size-fits-all policy.

Second, block grants would set up a vicious political fight during the next recession.  States feel the pinch of recessions the most because they have balanced budget requirements.  Matching rates keep the safety net going by making it a bad deal to cut in hard times — states that cut Medicaid would be leaving lots of federal money on the table.  This keeps the safety net broad when it is needed most.  Under block grants, however, this disincentive to cut health care goes away, ensuring deep cuts by cash-strapped states.

This wouldn’t simply affect the poor families and the aged and disabled Americans who depend on Medicaid to reimburse their doctors, dentists, hospitals and nursing homes.  They would face deep cuts, to be sure, but because healthcare providers who are part of Medicaid possess considerable political clout in statehouses, they would lobby hard to keep the safety net from being completely shredded. 

A state needing to cut billions in a recession as health costs rise would spread the pain.  They would cut other things — like public safety and education. We saw this during the last recession, but it would be even worse without the strong federal assistance provided by Medicaid matching rates.

The political jujitsu at work here is that cuts would be delivered a few years from now, with the blame falling on governors and state legislators rather than the president and Congress.  It will be easy to forget what led to those cuts.  But the small-government advocates who are pushing block grants right now know exactly what their long-term impact will be.  Now is the time for the rest of us to put the life-and-death stakes of this issue at the center of our political debate.   

Thad Kousser is professor and chair of political science at the University of California San Diego.

The views of contributors are their own and not the views of The Hill.