Some argue Medicaid can't meet obligations without fundamental reform

Many of the current fiscal challenges faced by states appear similar at first glance, says Matt Salo, executive director of the National Association of Medicaid Directors in Washington, DC, but they are never truly the same. "States are all in very different positions," he says. "The block grant issue is an interesting one."

Block grants involve changing both the financing of the Medicaid program and the rules by which states must live while administering it, notes Mr. Salo. "On some level, it is a political discussion," he says. "The phrase 'block grant' is sometimes used, or avoided, based entirely on the political party of those talking."

However, block grants are part of a broader political discussion that involves federal spending and entitlement programs and includes Medicare as well, notes Mr. Salo.

"Medicaid is currently an unlimited matching program where for every dollar a state spends, the feds will spend a commensurate dollar—or two or three, depending on the FMAP [Federal Medical Assistance Percentages], " he says.

While some people want to cap this exposure to the federal government for fear that states are "gaming the system," says Mr. Salo, others simply want to limit the federal exposure, period. "In fact, some states are considering trying to cap their own exposure," he says. "It all boils down to Medicaid program expenditures rising faster than the capacity of revenues to keep up."

Current financing structure

While all states would argue that they need more flexibility in administering the Medicaid program, says Mr. Salo, not all would agree that accepting less money is an appropriate tradeoff for that.

"However, I think that every state would argue for rethinking and improving the way the program is run," says Mr. Salo. "Not all will call it 'block grants.' But many states are very concerned that without fundamental reform, the program's obligations and expectations simply cannot be met with its current financing structure."

At the end of the day, there may not be much difference between "requesting a block grant" and "requesting an 1115 waiver," says Mr. Salo, except that the first, in theory, might provide states with more guarantees that they can do what they wanted. In contrast, he explains, the federal government can deny a waiver request or tie it up in red tape.

"A true 'block grant' is a pipe dream. It doesn't and won't exist," says Mr. Salo. "At no point would Congress ever agree to simply hand over hundreds of billions of dollars to states with no strings attached."

Current discussions revolve around what changes to financing are feasible, says Mr. Salo, and "what of the thousands and thousands of pages of rules, regulations and guidance could be gotten rid of."

There is no question that states could operate their Medicaid programs more efficiently without any federal regulation, according to Mr. Salo. "For argument's sake, they could probably cover more people, too, although expanding government coverage of health care is not necessarily on every state's political agenda," he says.

Mr. Salo says that an old Medicaid joke is that, given the dynamics between financing and program operation, the right would gladly give the states as much flexibility as they want, but less money and the left would give states as much money as they want, but less flexibility. "And so, we stay with the status quo," he says.

Contact Mr. Salo at (202) 403-8621 or