Thursday, December 8, 2016

Are Medicaid Block Grants a Stumbling Block to Quality Healthcare?

Given how President-Elect Trump campaigned about the Affordable Care Act, more colloquially known as Obamacare, the odds of Obamacare surviving a Trump presidency are next to nil. Obamacare is not the only healthcare initiative to expect reform under a Trump presidency. One that Republicans have been eyeing for a while is how to fund Medicaid, specifically in the form of block grants.

In its report on block grants, the Congressional Research Service defines block grants as "a form of grant-in-aid that the federal government uses to provide state and local governments a specified amount of funding to assist them in addressing broad purposes." Using block grants to fund Medicaid is hardly a new policy proposal: it goes back to the Reagan administration.

The Left-leaning healthcare think-tank Commonwealth Fund criticizes block grants for departing from the normal structure of providing flexible spending. The issue for Commonwealth Fund is that because block grants are based on a preset formula that does little to nothing to account for population growth or number of beneficiaries since the federal contribution would remain roughly the same. Another Left-leaning think-tank, the Center for Budget and Policy Priorities (CBPP) finds that based on previous Republican proposals, we would see 14 million less Medicaid enrollees, costs shift over to states, and that block-grant funding would decrease Medicaid funding by 33 percent over the next decade. One comment I do have to make about the fear-mongering around losing 14 million enrollees is that just a decade ago, there were only 42.5 million enrollees. As of date, that number is at 73.1 million enrollees! A little over a third of that growth is thanks to Obamacare's Medicaid expansion of bringing in 11 million Americans under Medicaid. Interesting what happens when you put enrollment rates into a more historical context. Plus, let's not forget the irony of block grant critics, which is that because the federal government pays a majority of Medicaid expenditures, the status quo allows states to shift costs to other states.

This next point has more validity than those made by the CBPP. The Left-leaning Urban Institute also released research on Medicaid block grants back in September. The Urban Institute found that there would be major disparities from state to state (see below), which would not only value a patient more highly simply because they live in a different state, but would also burden taxpayers to pay more if the state expanded eligibility. This would ultimately reduce state flexibility and threaten current coverage levels.

If the next Congress decides to go the route of block grants, there are a number of questions that would need to be answered: What is the amount of the initial federal allotment? How much flexibility will be given for population growth, healthcare industry price growth, or economic downturn? Does this mean that states would still need to spend money on Medicaid? These are important questions, but they obfuscate an even more question: how well does Medicaid work?

[As a caveat to Medicaid block grant criticism, the Congressional Budget Office (CBO) also recognizes that Medicaid's financing and the degree of flexibility are two separate issues. If the spending cap. e.g., block grant, was coupled with state flexibility over such facets as "administrative requirements, ways to deliver health care, cost-sharing levels, and covered eligibility categories," it could make it easier for states to adjust their Medicaid spending.]

There is much detail that can be delved into regarding Medicaid because it is so complex, but here is a high-level view. In 2015, the United States spent $532 billion for Medicaid. $29.1 billion of that money spent, or about 5 percent, was spent in improper payments. This is just one reason why the Government Accountability Office (GAO) has Medicaid rated at "High Risk." 33 percent of physicians don't even accept Medicaid beneficiaries. Projected growth in annual Medicaid expenditures over the next decade is projected at 6.1 percent, which is slightly higher than the overall healthcare growth of 5.8 percent. Medicaid enrollees only have a slightly better chance of surviving cancer than the uninsured. About a decade ago, Jonathan Gruber, who is referred to as "the architect of Obamacare," found that public-sector healthcare (e.g., Medicaid) crowds out private-sector healthcare to the point where the government covers four patients at the price of ten (Gruber and Simon, 2007).

Simply throwing money into an already-failing system neither addressed fiscal insolvency nor structural incentives to improve upon enrollees' healthcare, which is why there are those who advocate for block grants. The advocates argue that because they are of the view that block grants would cut back on waste while giving states more flexibility to experiment with potentially more cost-effective options. This 2012 report from Right-leaning Manhattan Institute outlines how block grants can better target Medicaid funds, improve healthcare quality, and cut back on costs. The Texas Public Policy Foundation published a 2015 report on what block grants could look like for the state of Texas, which is the largest state that did not accept the Medicaid expansion funds under Obamacare. The libertarian Mercatus Center also has a report showing how welfare block grants can act as a model for Medicaid reform (Sutter, 2013).We need to try something that will better incentivize more responsible spending while ensuring as much healthcare as possible. Since Trump has not released details on how exactly he would go about block grants, although the bipartisan Committee for a Responsible Federal Budget (CRFB) has estimated 10-year savings based on certain scenarios. Block grants are not a silver bullet, but implemented adequately, they can be a first step in the right direction to make sure all Americans can access high-quality healthcare.

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