HomeWashington Letter2020 ▶ Trump Administration Offers Medicaid Block Grant Option to States
Trump Administration Offers Medicaid Block Grant Option to States

The Trump administration recently unveiled a new proposal, called Healthy Adult Opportunity,” which would allow states to begin transforming their Medicaid programs from their current state as an open-ended federal entitlement, to a smaller, more selective, block grant program. The administration recently sent guidance to states inviting them to consider converting coverage for single non-disabled adults under age 65, including those covered under the Affordable Care Act (ACA)’s Medicaid expansion, into a fixed yearly federal payment, known as a block grant. In the traditional Medicaid program, the federal government provides states with between 50 percent to 70 percent of their Medicaid funding annually, depending on state wealth, as well as additional funding if needed to account for enrollment increases, economic downturns and other factors. In contrast, the new block grants would be capped at current levels and would not increase except for inflation. Capped annual block grants would result in significantly reduced Medicaid program funding over time.

A key element of the proposal would allow substantial flexibility for states to change Medicaid eligibility rules and coverage benefits, such as increased cost-sharing and limits on covered prescription medications. This would also allow states to deviate from the federal Medicaid provider reimbursement rules that prevent states from reducing provider reimbursement below a certain threshold. A shared savings incentive would allow states to reinvest a portion of any funding saved into health initiatives for other populations, not necessarily Medicaid beneficiaries, such as tobacco cessation programs open to the general public.

Block grants have long been favored by conservatives as a way to reduce entitlement spending, and were a key element of the Republican effort to repeal the ACA in 2017. Tennessee was the first state to explicitly express interest in block-granting part of its Medicaid program in a proposal the state released in September 2019. The ATS commented on its proposal, expressing a number of deep concerns including the lack of accountability for maintaining medically-necessary benefits such as prescription drugs, for vulnerable populations, including for individuals with respiratory illnesses and children. The ATS also raised concerns that reductions in provider reimbursement would lead to fewer Medicaid providers and reduced access to care for beneficiaries. The ATS expressed opposition to any policy block-granting Medicaid as such proposals significantly reduce state funding over time for health care for vulnerable populations.

The block grant proposal faces challenges, however, both in the courts and from Congress, where many members say that the administration does not have the authority to cap federal Medicaid spending without authority from Congress. The House of Representatives passed a resolution this week expressing disapproval of the administration’s Medicaid plan. The proposal’s viability will be tested if the administration approves state proposals, and are likely to be challenged in courts.

Last Reviewed: February 2020