Block Grant FAQs
Updated: Oct 6, 2022
Q: What is a block grant?
A “block grant” is a fixed amount of money that the federal government gives to a state for a specific purpose. If Medicaid was turned into a block grant, the federal government would set each state’s Medicaid spending amount in advance. That amount would presumably be based on some estimate of state Medicaid spending, but most block grant proposals start with significant cuts in federal Medicaid support.
Q: What happens if a state spends more than the block grant amount?
Once the amount is set by the federal government, it will not change, even if a state’s actual program costs are greater than the allotted amount. If a state’s costs exceed the amount of the block grant, it will have to use its own funds to make up the difference or, more likely, cut services for low-income residents, including children, seniors, and people with disabilities.
Q: It seems like both Democrats and Republicans are pretty fired up about this. Why is this such a big deal?
The block grant system is a radical shift from how Medicaid has worked previously. Republicans say it could save the government billions of dollars. But other analysts note those savings could limit access to health care if the funding becomes squeezed. Thanks to the 2010 health law, which led states to expand Medicaid eligibility, more people would face the brunt of those cuts.
The fiscal impact: The non-partisan Congressional Budget Office estimates recent Republican block grant proposals could cut Medicaid spending by as much as a third over the next decade. The cuts would start small, growing larger over the years.
Many Republicans say that, because states will have greater flexibility, they can innovate with their Medicaid programs.
But opponents note that experimentation alone won’t make up for smaller budgets. The fixed grants could mean states cut benefits or force beneficiaries to take on more cost-sharing, for instance.
The potential impact is significant. More than 10 million who got insurance through Obamacare are on Medicaid and could be affected. That’s also why some Republican governors — particularly in states that embraced the health law’s Medicaid expansion — have joined their Democrat peers in expressing qualms.
Q: Where did the Block Grant approach come from?
This dates back at least until the 1980s. President Ronald Reagan pushed Medicaid block grants in 1981, House Speaker Newt Gingrich in 1995 and President George W. Bush in 2003.
Gingrich’s plan came closest — it passed through Congress but failed to garner approval from then-President Bill Clinton. He eventually consented to block grant welfare, resulting in the Temporary Assistance for Needy Families program.
Q: I don’t get my insurance through Medicaid. So why should I care?
Medicaid is a major government program. In 2015, it accounted for 17 percent of the nation’s health care expenditures — money that comes from taxpayer dollars.
Plus, the 75 million people covered make up almost a quarter of the U.S. population. And almost two-thirds of people in nursing homes pay for their care using Medicaid — indeed, most of the program’s spending is on the elderly and disabled. If lawmakers are trying to save $1 trillion over a decade, it’s hard to see how that could happen without touching elderly benefits.
Even if you aren’t covered by Medicaid, you probably know someone who would be affected by block granting.
Revamping Medicaid could also affect what services hospitals provide, and their economic strength. Specifically, hospitals and clinics that treat large numbers of Medicaid beneficiaries may have to rethink their budgets, what services they can provide and how many people they can employ. That matters from a health care standpoint, but also a jobs one — hospitals are often large community employers.
Finally, the debate could also set the tone for how Congress treats other so-called “entitlement programs,” such as Medicare and Social Security. The CBO estimates that, barring any meaningful change, spending on Social Security and other health programs will account for about 16 percent of all the country’s yearly goods and services — the gross domestic product — by 2046. A successful change in Medicaid could pave the way for similar changes in other programs.