Proposed Medicaid block grant would mean less flexibility and fewer federal dollars for Colorado
Growing concern about the federal budget deficit has led many to look to the Medicaid program for savings. One proposal to reduce federal expenditures is to move Medicaid to a block grant funding system. Most recently, Medicaid block grant funding has been proposed by Congressman Paul Ryan, chairman of the House Budget Committee. Moving toward a block grant program would undermine the integrity of Medicaid, leading to draconian cuts in services, eligibility and provider payments, and creating inequality among states. Medicaid was designed as a safety net for the lowest income and most vulnerable members of society. A block grant system would destroy the ability of Medicaid to serve in that capacity by eliminating flexibility and removing its ability to respond to needs.
Medicaid is a critical safety net for nearly half a million Coloradans
Medicaid is a joint federal-state program designed to provide health care for people otherwise unable to access insurance, including the elderly, disabled, and low-income adult and child populations. Participants are eligible based on income and status (i.e., disability, age, pregnancy). Medicaid provides health insurance for one in 10 Coloradans. It covers one of every 2.4 births in the state, one of every four children, and six in 10 nursing home residents.1
Medicaid is run in a partnership between the federal government and states. The federal government imposes minimum eligibility and benefits coverage requirements and offers matching grants for states, providing 50 to 75 percent of Medicaid funding.2 For their part, states decide the details of their programs, pay their share and administer the program.
Colorado generally receives a one-to-one match — each dollar the state spends in its Medicaid program is matched by the federal government. There is no upper limit on funding and no set amount each year. In state Fiscal Year 2009-10, Colorado served an average of 498,189 clients monthly at a state and federal combined annual cost of about $4 billion.3
Block grants provide consistent funding but lack flexibility
Block-grant funding begins with a set amount of funding for a program. That “block grant” is divided among states using a formula and might include a growth formula to allow a controlled amount of growth over time. By prescribing the size of the block grant, the federal government can easily control total program costs to the federal government.
Congressman Ryan proposes to convert Medicaid to a block-grant system. Under the proposal, the Medicaid block grant would be set based on a target appropriation and allowed to grow year-to-year by population growth and inflation.4 Those factors combined make for a much slower growth rate than current projections for Medicaid expenditure growth, thereby producing cuts over time.5 (Figure 1) In exchange for a capped federal appropriation, Ryan’s proposal would exempt states from federal mandates including minimum requirements for eligibility and benefits.
Locked into a diminishing status quo
Under the Ryan plan, allocation of the block grant among states would likely be based on historical state Medicaid expenditures, probably in a recent base year. Such an allocation system would cement the existing hierarchy of state Medicaid programs, wherein some states boast robust eligibility and coverage and others have weaker programs. Once locked in, states would then have to cope with increasing inadequacy of federal Medicaid funds, as the total federal block grant grows more slowly than costs.
Colorado’s relatively low spending hurts us under a block grant
With a relatively small Medicaid program, Colorado would be particularly ill-served by a permanent continuation of the current state Medicaid hierarchy. In Federal Fiscal Year 2009, Colorado claimed just less than 1 percent of total U.S. Medicaid expenditure, ranking 30th in Medicaid spending among states (combined state and federal expenditure) and 20th in payments per enrollee.6 With its future share of the pie determined by its past helpings, Colorado would be unable to improve the standing of its Medicaid program.
Prevented from moving forward
Furthermore, more proactive public policy decisions — such as adjusting eligibility rules to help care for the state’s uninsured, adding services like dental coverage for adults in Medicaid, or, restoring and increasing provider payments to maintain and increase provider participation — would be all but impossible because the significant scaling back of federal funding would further stiffen competition among priorities and jeopardize access to health coverage and health care in Colorado.
Decreased responsiveness
Another prominent shortcoming of a Medicaid block grant system is its rigidity. Colorado’s Medicaid caseload-driven expenditures are volatile and tend to increase dramatically during recessions. For example, Colorado’s Medicaid enrollment increased 47 percent or by 183,236 individuals in the recent recession.7 By contrast, a Medicaid block grant would provide a consistent but increasingly inadequate stream of funding. In fact, according to analysis from the Center on Budget and Policy Priorities, had a block grant been in place starting in 2000, Colorado would have experienced a $2 billion reduction in federal funding, a 15 percent decrease, compared to what the state actually received.8 That would leave Colorado unable to accommodate large recessionary upswings in Medicaid caseload like the ones that dominated the past decade. (Figure 2)
Unanticipated cost increases
In addition, Colorado would shoulder a growing burden of cost increases associated with any public health crises or treatment innovations. In its long-term analysis of Ryan’s proposal, the Congressional Budget Office stated:
Because of the magnitude of the reduction in federal Medicaid spending under the proposal … states would face significant challenges in achieving sufficient cost-savings through efficiencies to mitigate the loss of federal funding. To maintain current service levels in the Medicaid program, state would probably need to consider additional changes, such as reducing their spending on other programs or raising additional revenues. Alternatively, states could reduce the size of their Medicaid programs by cutting payment rates for doctors, hospitals, or nursing homes; reducing the scope of benefits covered; or limiting eligibility.9
Health care provider rates
Already, in order to preserve eligibility and benefits during the recent economic downturn, Colorado cut the amount it pays health care providers to serve Medicaid patients.10 Locked into its current share of funding, Colorado would have to choose between restoring the provider rate to more reasonable levels and reducing the number served, or extending irresponsibly low provider rates indefinitely.
Colorado’s Medicaid landscape ill-suited for block grants
Several attributes of Colorado’s health care environment would create serious problems for the state under a block-grant funded Medicaid. Those include Colorado’s current rapid growth in Medicaid enrollment and Medicaid expenditure, population growth and expansion of costly populations.
Enrollment and spending growth
In recent years, Colorado has experienced large Medicaid caseload and spending growth. That growth was a product of recent expansions in Medicaid coverage and the major recession that began in late 2007. (Figure 3) As a result of those conditions, Colorado has the 9th highest average annual growth in Medicaid spending over the last two decades.11 In the next five years, Medicaid enrollment growth in Colorado is projected to accelerate even more, as Colorado slowly recovers from the Great Recession and implements further expansions of Medicaid designed to serve adults without dependents and working people with disabilities who would like to buy in to the Medicaid program. (Figure 4)
Block grant funding under the Ryan plan would prohibit Colorado from sustaining Medicaid enrollment and spending growth. First and most obviously, the Ryan plan strikes the Patient Protection and Affordable Care Act from law, eliminating the laws expansion of Medicaid eligibility to 133 percent of the Federal Poverty Level, an important, affordable source of health coverage for an estimated 214,000 low-income Coloradans.12
Even setting aside the Ryan plan’s invalidation of the health reform law, under a block grant funding system for Medicaid like Ryan’s, Colorado would be unable to fund its current Medicaid program going forward. Because Colorado would be locked into its share of the block grant based on its past Medicaid spending, the state would not be able to support planned Medicaid expansions by increasing its relative share of Medicaid funding. Instead, the Ryan plan would leave many low-income Coloradans, seniors and people with disabilities without affordable health care.
Population growth
Over the past decade, Colorado experienced consistent population growth.13 That growth is projected to continue unabated. In the next 20 years, the state’s population is forecasted to grow by more than one-third. Colorado’s forecasted population growth between 2010 and 2030 is the 14th highest growth in the nation.14
Colorado’s high population growth would put it at a disadvantage in the future under a block grant system. Depending on how the formula for allocating the block grant among states is created, Colorado could be locked into a share of federal Medicaid funding based on Medicaid spending today, as the state grows faster than others, it would have a fixed share of funding to cover an increasing share of the population.
Children, people with disabilities and the elderly could suffer
Medicaid plays a critical role in serving vulnerable populations. Colorado faces growth both in elderly and young poor residents, two of the primary groups served by Medicaid. It also supports a disabled population with an unpredictable cost profile. Those issues are expected to create future strain for the state Medicaid program moving forward. Under a block grant system, Colorado loses its ability to serve all three populations successfully. The state would be faced with the choice of reducing benefits to needy populations further cutting provider payments or both.
Child poverty
From 2000 to 2009, the number of Colorado kids in poverty increased from about 110,000 to 210,000. That was the fastest growth in child poverty recorded in any state.15 Because the majority of enrollees in Colorado’s Medicaid program are kids at or around the poverty level, the state’s child poverty problem presents a challenge for its Medicaid program.16 Diminishing federal Medicaid funding under a block grant scheme would be detrimental to the state’s ability to serve these children as it has in recent years. Since 2008, despite the increase in childhood poverty and increased unemployment, the number of uninsured children in Colorado decreased by 42,000.17 That change is attributable in no small part to programs like Medicaid and Child Health Plan Plus.
Elderly population growth
While the majority of the clients in Colorado’s Medicaid program are children, the majority of spending supports the state’s elderly and disabled residents.18 Medicaid complements Medicare and is the program that provides long term care services. In the middle of 2010, 117,700 elderly and disabled Coloradoans relied on Medicaid for health insurance.19
During the next 20 years, Colorado’s elderly population is expected to expand substantially, growing from 10.7 percent of state population in 2010 to 16.5 percent in 2030.20 (Figure 5) That growth will strain the state’s Medicaid program even under the current system which requires the federal government to match every dollar Colorado spends. Under a block grant program, Colorado would be placed in the untenable position of having to reduce program eligibility or services, potentially leaving thousands of elderly Coloradans without adequate health care.
People with disabilities
While disabled populations are a major driver of Medicaid costs, changes in disability needs are very difficult to predict and could prove difficult to accommodate under a block grant scenario. For instance, in the 1990s the Social Security Administration saw an unpredicted increase in blind and disabled Supplemental Security Income (SSI) participants. In analysis of the trend, the agency notes that, “factors other than population growth and a changing age distribution are affecting the growth of the SSI disability program.”21 The Alzheimer’s Association predicts Colorado will be one of two states with the highest percentage growth in Alzheimer’s diagnoses.22 Medicaid could play a significant role in the care of these future Alzheimer’s patients, but only if Medicaid continues to be flexible enough to serve them. While SSI recipients and Alzheimer’s patients represent subsets of the people with disabilities served in the Colorado Medicaid program, these examples illustrate that a block grant program which adheres to a particular growth formula based on population growth and inflation would not allow Medicaid the flexibility to respond to future changes.
Block grants an artificial cost control and unresponsive to needs
Congressman Ryan repeatedly calls Medicaid a broken system and cites problems such as low provider payments, quickly increasing costs, and runaway state spending.23 Massive budget cuts do not solve any of these problems. The proposal completely fails to acknowledge the extreme value the Medicaid program provides as a source of coverage, support and long term care for millions of low-income, disabled and elderly Americans. It fails to acknowledge the role Medicaid plays in the health care system and does nothing to address the real problem of rising health care costs , or how and where the low-income and vulnerable people served by Medicaid would receive health care services. The Ryan proposal is a rhetorical exercise in problem shifting, it offers no reasonable or realistic solutions. .
This is not to say that the cost of care in Medicaid, like all health care costs, are not rising at an alarming rate and that there should not be attention focused on innovation, efficiency and cost containment across all public and private health care systems. However, the blunt instrument of the block grant imposes draconian cuts that do absolutely nothing to contribute to proactive policy solutions. Further, the Ryan proposal does not acknowledge that states already have a great deal of flexibility to innovate through various types of waivers available under the Medicaid program. Rather, it establishes as a foregone conclusion that as a matter of public policy limiting coverage under the Medicaid program is the most desirable outcome.
Colorado needs a Medicaid program that continues to be able to respond in times of economic hardship, can help to support the state’s aging and disabled populations and helps Colorado address health crises. Colorado is exploring policy solutions that contain costs. However, the integrity of the Medicaid program as a critical safety net for low-income, disabled and elderly Coloradans must be preserved. Ryan’s proposal does nothing but artificially control costs through drastic budget cuts at the expense of health coverage for Colorado’s 569,000 Medicaid current recipients and hundreds of thousands of future recipients.
Contact: Adela Flores-Brennan
Health care attorney
303-573-5669, ext. 313
Alec Harris
Policy analyst
303-573-5669, ext. 316
Released April 13, 2011
End notes
1 Beck, Melodie, “FY 2011-12 Staff Budget Briefing: Department of Health Care Policy and Financing,” Colorado General Assembly Joint Budget Committee, Dec 9, 2010, pp56-57.
2 “Medicaid Block Grant Would Shift Financial Risks and Costs to States,” Center on Budget and Policy Priorities, Feb 23, 2011.
3 “Premiums, Expenditures and Caseload Report,” Colorado Department of Health Care Policy Financing, June 2010 report; and “Appropriations Report: Fiscal Year 2009-10,” Colorado General Assembly Joint Budget Committee.
4 House Budget Committee FY2012 Chairman’s Mark accessed at http://budget.house.gov/UploadedFiles/SummaryTables.pdf , April 11, 2012.
5 “Long-Term Analysis of a Budget Proposal by Paul Ryan,” U.S. Congress: Congressional Budget Office, April 5, 2011.
6 “Total Medicaid Spending, FY2009” and “Medicaid Spending Per Enrollee,” Kaiser Family Foundation: State Health Facts. www.statehealthfacts.org
7 Analysis of “Premiums, Expenditures and Caseload Report,” Colorado Department of Health Care Policy Financing, February 2011 report.
8 Park, Edwin and Broaddus, Matt, “What if Ryan’s Medicaid Block Grant had Taken Effect in 2000?” Center on Budget and Policy Priorities, April 12, 2011.
9 Congressional Budget Office, “Long-Term Analysis of a Budget Proposal by Chairman Ryan,” April 5, 2011.
10 Beck, p75.
11 “Average Annual Growth in Medicaid Spending, FY 1990-2009,” State Health Facts.
12 “Uninsured Coloradans: Who will be newly covered under health care reform? Who will remain uninsured?” Colorado Health Institute, January, 2011.
13 “Focus Colorado: Economic and Revenue Forecast,” Colorado Legislative Council Staff: Economics Section, Mar. 18, 2011.
14 “State Interim Population Projections by Age and Sex: 2004-2030,” U.S. Census Bureau.
15 “State of Working Colorado 2010,” Colorado Fiscal Policy Institute, March 2010, p34.
16 Beck, p56
17 Piscopo, Lisa, “2010 Kids Count in Colorado,” Colorado Children’s Campaign, March 2010, p26.
18 Beck, p56.
19 “Medicaid Enrollment: June 2010 Data Snapshot,” Kaiser Family Foundation: Kaiser Commission on Medicaid, February 2011.
20 “State Interim Population Projections,” U.S. Census Bureau.
21“Population Factors Influencing Program Size,” U.S. Social Security Administration Program: Office of Policy. www.ssa.gov
22 Alzheimer’s Association, Colorado Chapter, http://www.alz.org/co/in_my_community_10800.asp , accessed on April 13, 2011.
23 Ryan, Paul, “Fiscal Year 2012 Budget,” House of Representatives Committee on the Budget, http://budget.house.gov/fy2012budget/, accessed on April 13, 2011.
