Medicaid Under the Gun

The Block Grant scam . . .

Since its inception in 1965, the Medicaid program has provided health care to millions of low-income families. In 1997 it was expanded with the establishment of the State Children’s Health Insurance Program, and again in 2010 with an extension under the Affordable Care Act, a.k.a. “ObamaCare.” Now it is all under grave threat from the Trump Administration and the new Congress.

A Federal budget bill is gestating in the MAGA-infested U.S. House of Representatives that would seek to reprogram hundreds of billions of dollars to pay for expanded defense spending, tax cuts, and concentration camps for undocumented immigrants. You will not be surprised to learn that you yourself, nor indeed most people, will ever see a penny of those tax cuts.

One of the few conceivable sources for the switch, because it’s where the money is, is Medicaid. I can confidently predict that the appointments of Robert F. Kennedy Jr. to head the Department of Health and Human Services and Dr. Mehmet Nutcase Oz to run the Center for Medicare and Medicaid Services will afford the program little protection.

Given the lamentable antics of Senator John Fetterman (“D”-PA), we might begin to regret his victory over Oz in 2022.

Medicaid is jointly financed by the Federal government and state governments. The Federal component is what’s known as a matching grant, which means a state’s allocation varies with its own spending effort. Matching rates vary by state but begin at no less than fifty percent. In other words, if a state spends a dollar, it gets at least half of that back from the national government. States whose residents have lower per capita incomes get a higher match.

One useful feature of the program is that it expands automatically to cover more people during economic downturns. Another is that a state with fewer resources gets more money. A more debatable feature is that its benefits vary from state to state, depending on a state’s willingness to pay for coverage.

With a fifty percent match, it is said that a state government’s “price” for spending a dollar is fifty cents. This has always been thought to provide a large boost to national health care spending for lower-income families. It also makes it easier for state and local governments to do everything else they care to do.

One device for dealing with the aftermath of the Great Recession of 2008 was an increase in matching rates. I did some work on that myself. My whole government career was about how to give away money, LOL. Higher matching rates to some extent could finance state government tax cuts. That was o.k., since it still meant a stimulus to household spending, which is what you want during and immediately after a recession.

The mechanism for the cuts will not be straight-forward to most people. It works as follows. The match for state spending would be eliminated, to be replaced by a so-called “block grant.” The initial amount for the grant might be higher than the current level, misleading observers to think no benefit cuts are in prospect.

The trick is that annual growth in the fixed amount of funding is restricted below the projected growth under the status quo, due to historically high medical inflation. Under current budget rules, this makes it possible to reroute the money without apparent effects on the Federal budget deficit over the ten-year budget window.

Presently Medicaid is the biggest item in state government budgets, blue and red states alike. Projected cuts in the matching grant will bring huge shocks to state and local governments. There will be pressure to either raise taxes or find spending cuts elsewhere. State government politicians might be amenable because they will be gone, retired or otherwise, by the time the spending reductions require austerity measures in state budgets.

Chances are the current crop of geniuses in Congresses don’t understand the game and will have cuts ramp up too quickly, causing outcries among their friends in red states.

Isn’t it funny that three notorious sources of high inflation, health care, higher education, and prescription drugs get so little attention? Mostly we hear about the prices of eggs or gasoline, neither of which are subject to government control to the extent that health care, drugs, and higher ed are.

The block grant playbook was run under the first Reagan Administration, in the early 1980s. Block grants replaced what were known as “categorical grants.” The latter had specific, narrow, focused purposes, while block grants merged the smaller categoricals and allowed state governments to use the money under relatively broad requirements. It allowed state-level politicians to take credit for state spending that appeared to be new, or for state tax cuts.

The politics were insidious. Categorical programs tended to have tightly bound, activist constituencies. Block grants blew up the politics and paved the way for future cuts in funding and eventual abolition. One justification for this exercise was that under block grants, state governments would be granted greater flexibility.

The flexibility gambit was raised further by the promotion of revenue sharing, which was money provided to states with no restrictions on its use. I was involved in that program myself, as a rookie Federal economist in the 1980s. Unrestricted money had fewer political supporters still. Revenue sharing was abolished in the latter 1980s. Secretary of the Treasury James Baker lied and proclaimed “We have no revenue to share.”

The block grant scheme was run again during the Clinton Administration in the name of “welfare reform.” The most prominent program of cash assistance to the poor (mainly single-parent families headed by women) was Aid to Families With Dependent Children (AFDC). It was funded by a Federal matching grant. The reform converted AFDC into a block grant, which by the way has hardly increased at all over time. The result is that cash assistance to the poor no longer exists. Most surviving AFDC money finances state government social services.

The beef about AFDC was that it discouraged work. Converting the program into a block grant had nothing to do with work requirements, or the lack thereof. We are starting to hear this again with respect to Medicaid. Writing about it and remembering this affair enrages me. God I fucking hate the Clintons.

Now, for lack of Medicaid, millions of low-income families, elderly, and the disabled will be left to the kindness of strangers on Gofundme websites, or obliged to pack into community health centers to get care. Hospitals primarily devoted to serving low-income communities relying on Medicaid money, especially in rural areas, will shut down. Poverty rates will increase.

People will start to wonder what they voted for.

See also this report from my collegue Eileen Appelbaum, and this substack on all things health by my friend Merrill Goozner.