What Would Block Grants or Limits on Per Capita Spending Mean for Medicaid?

Abstract

Issue: President-elect Trump and some in Congress have called for establishing absolute limits on the federal government’s spending on Medicaid, not only for the population covered through the Affordable Care Act’s eligibility expansion but for the program overall. Such a change would effectively reverse a 50-year trend of expanding Medicaid in order to protect the most vulnerable Americans. Goal: To explore the two most common proposals for reengineering federal funding of Medicaid: block grants that set limits on total annual spending regardless of enrollment, and caps that limit average spending per enrollee. Methods: Review of existing policy proposals and other documents. Key findings and conclusions: Current proposals for dramatically reducing federal spending on Medicaid would achieve this goal by creating fixed-funding formulas divorced from the actual costs of providing care. As such, they would create funding gaps for states to either absorb or, more likely, offset through new limits placed on their programs. As a result, block-granting Medicaid or instituting "per capita caps" would most likely reduce the number of Americans eligible for Medicaid and narrow coverage for remaining enrollees. The latter approach would, however, allow for population growth, though its desirability to the new president and Congress is unclear. The full extent of funding and benefit reductions is as yet unknown.