Block Grants

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The Problem with Medicaid Block Grantsfor Children with Complex Medical Needs

by Susan Agrawal

I want to begin by stating this article is not intended to endorse a candidate or passjudgment on a political party. Instead, it will simply look at one proposal, turningMedicaid into a block grant program, and the effects this proposal will have on childrenwith disabilities.

What are Block Grants?

I think we can all agree that the Medicaid system could use some reforming. It is anexpensive program, and it is not free from fraud and waste.

One suggestion for reforming Medicaid is to convert the program to state-based blockgrants. In this system, the federal government would determine each states generalfinancial need based on population and other factors, and would award the state a lumpsum in Medicaid funding. This lump sum could then be spent however a state wanted,intentionally free from most federal rules and regulations. When the federal lump sum

has been exhausted, the state cannot receive any further federal funds.

Currently, states receive federal matching dollars for each dollar they spend on Medicaid.This encourages states to spend their own dollars on Medicaid if they want to receiveadditional federal matching dollars. Under block grants, state spending would no longerbe tied to the receipt of federal dollars. States would be free to spend or not spendadditional state dollars on Medicaid, potentially reducing state spending for Medicaidconsiderably in some instances, but also putting states at financial risk if they run out offederal dollars as a result of an unpredictable event, such as a natural disaster.

While some political groups have suggested they would leave some federal protections

and regulations in place, such as mandatory coverage for certain populations, othergroups truly want to remove all federal oversight of the Medicaid program, allowingstates to fully design their own programs with minimal to no oversight from the federalgovernment. It is unknown how much federal oversight and protections would remain.

In addition, some block grant proposals call for dramatically reduced federal spending onMedicaid over time, meaning significantly fewer federal dollars will be available tostates. For example, a House budget plan from 2011 would have cut Medicaid by 34% or


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$1.4 trillion dollars over a 10-year period by eliminating the Affordable Care Act andchanging to a block grant system.

The Arc, a non-partisan non-profit organization that supports people with intellectualdisabilities and their families, has already prepared a general position paper on what

block grants are and how they would affect people with disabilities. This article may beviewed at http://www.thearc.org/page.aspx?pid=3085. The primary issues raised by theArc include removal of guaranteed access to Medicaid (entitlements), elimination ofprotections that mandate required benefits, and the potential stoppage of federal dollarswhen the grant runs out.

Rationing Care: Who Wins?

States are already strapped for cash due to the economy, and many are currently trying totrim their Medicaid budgets. Under current regulations, states are barred from removing

any classes of people from Medicaid until 2014 for adults and 2019 for children. IfMedicaid were switched to a block grant program, however, states could potentiallyremove certain populations from Medicaid, cap the number of individuals served, or scaleback benefits considerably.

Various scenarios predicting Medicaid enrollment under block grants estimate that 41%to 58% of individuals would lose coverage.1 While it is unknown which populationsstates would remove from Medicaid, it is likely that states would try to target some of thehigher cost users in their states. People who tend to be high cost users typically includepeople with disabilities and the elderly. See Figure 1. While the elderly and people withdisabilities make up only 25% of individuals enrolled in Medicaid, they are responsiblefor 66% of Medicaid spending.

States would have to choose which populations could benefit from Medicaid the most.States would likely restrict Medicaid coverage for healthy adults to only the very, verypoor. Similarly, healthy children cost Medicaid very little money but make up 50% ofrecipients. While in general it is good public health policy to keep children healthy andinsured, children dont vote, and it is expected that block grant policies may limit thenumber of children insured through Medicaid quite significantly. On the other hand, theelderly vote in large numbers and tend to have more political clout, meaning they mayhave better luck preserving their share of the Medicaid pot. People with disabilitiesunfortunately have little political clout and may see their share of Medicaid cutconsiderably through block granting.


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Figure 1: Kaiser Family Foundation Medicaid Enrollees and Expenditures

Medicaid would also cease to be an entitlement, meaning that states could cap thenumber of enrollees in certain Medicaid plans or groups, denying services to some of themost neediest citizens, who could flounder on waiting lists for years. In addition,currently mandatory and optional services could be cut for adults and children, leavingfamilies with inadequate coverage, and potentially leading to greater mortality andmorbidity.

No matter what decisions states make, there will be rationing of Medicaid services under

block granting, which will likely lead to lower levels of Medicaid coverage for somegroups of children and people with disabilities.

EPSDT: The Protection that Guarantees Nursing, Therapy and Specialty Care

One of the most important protections in the current Medicaid program is a little knownprogram called Early Periodic Screening, Diagnosis and Treatment (EPSDT). You canthink of this program as the package of services provided to every child who receivesfinancially-based Medicaid or a Medicaid waiver. It is the greatest protection forchildren in Medicaid, and the provision that mandates that children receive critical

services, including therapies, home nursing, coverage for supplies and equipment, andother necessary services.

The EPSDT program began during the late 1960s, when it was determined that one out ofthree young males was not eligible for military service due to a physical, developmentalor medical problem. This was especially true for lower income males. In order to correctthis problem, the Medicaid rules were changed for children. Doctors were required toscreen children as early as possibleand on an ongoing basis for any problems. If a


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problem was detected and diagnosed, the doctor was required to prescribe a treatmentplan, and Medicaid was obligated to pay for it. Eventually, these rules were applied to allmandatory and optional Medicaid services, thus providing children with an incrediblycomprehensive set of benefits, far more generous than private insurance in most cases.

Currently, EPSDT requires that states cover all medically necessary services for childrenwho financially qualify for Medicaid or participate in Medicaid waivers. Most states alsoexpand these same benefits to moderate income children who receive Medicaid coveragethrough a state-based Childrens Health Insurance Program (CHIP), though this is notfederally required.

A block grant system would make EPSDT null and void, unless political leaders chose toleave certain protections in place, which is unlikely. Without the guarantee of EPSDT,states could determine which services they do and do not cover. For example, manystates have refused to provide diapers and other incontinence products through Medicaid,but were forced to do so because of EPSDT. Other states have tried to eliminate or

reduce home nursing care services or prescription drugs, but have thus far failed becauseof EPSDT.

With a block grant system, EPSDT would likely disappear, thus removing the greatestprotection mandating children receive medically necessary services. Cash-strapped stateswill be given full power to determine what services they will cover and for whatpopulations. States would likely limit or refuse to cover certain critical services (similarto what private insurance plans have done), such as therapies, home nursing care,equipment and supplies. If these services were eliminated, children would have noprotections or legal recourse to obtain them. As such, many children would no longerreceive medically necessary care and services, leading to poorer outcomes, increasedhospitalizations, and potentially even the deaths of some children.

Katie Beckett, TEFRA, Deeming, and Other Medicaid Waivers

Currently, many children with disabilities or complex medical needs receive primary orsecondary Medicaid coverage through Medicaid waiver programs, often called KatieBeckett, TEFRA, or Deeming waivers. Waivers are optional programs that extendMedicaid to people who would not normally qualify. These programs are typicallyavailable to any children who would otherwise have to live in an institution (where theywould be eligible for Medicaid) to receive necessary specialized care and services. Atthis time, programs are open to children of all incomes, though acceptance criteria varywidely by state. States must apply to the federal government for a waiver program, andthe government pays at least half the cost of the program. Waiver programs come withcertain assurances and protections, including full EPSDT benefits for children.

Under a block grant system, Medicaid waivers would be eliminated entirely. The federalgovernment would no longer determine who is eligible for or entitled to Medicaidservices. Instead, states could determine which children they want to serve, and what


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services they would provide them. Based on the fact that cash-strapped states includingFlorida, Illinois, and California have already tried to eliminate or drastically reduceservices, it is very likely that these small waiver programs would be cut or eliminated inmany states. Hundreds of children currently able to live at home with services andsupports could be forced into institutions.

Can Block Grants Work?

Block granting as currently proposed would have a devastating effect on children andpeople with disabilities, eliminating coverage for many of them and reducing benefitsconsiderably.

Under current proposals, which intentionally remove federal oversight and protectionsand dramatically reduce federal Medicaid spending, block grants would achieve successin only one way: they would dramatically reduce federal costs.

But the likelihood of them continuing to reduce costs is unknown. If millions of peoplebecome uninsured as a result of block grants, these people will still require healthcare.Most likely, the burden of their care would shift to the emergency room and hospital,with increased costs for charity care to states and providers. Past experience hasdemonstrated that this type of inconsistent and uncoordinated care results in dramaticallysteeper healthcare costs.

If states responsibly create unique programs to cover their citizens in a comprehensiveway, it is possible they could reduce costs. However, this option is already availablethrough type 1115 demonstration programs, within the context of the current Medicaidsystem, including appropriate protections. There is no need for a draconian block grantsystem when the flexibility to create comprehensive yet individualized state-basedprograms already exists.

1 http://www.kff.org/medicaid/upload/8185.pdf

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