Are block grants the wave of the future for Medicaid?

If recent state efforts to reform Medicaid, including Rhode Island's and Texas's, prove to be successful, we are likely to see similar approaches in other states, says Elizabeth Weeks Leonard, JD, associate professor of law at the University of Georgia in Athens.

"States are certainly capable of coming up with innovative, successful alternatives to the current federal requirements for providing health care to low-income individuals," she says. "Block grant waivers are certainly a realistic possibility."

Ms. Leonard notes that President Obama voiced support for state waivers in a speech to the National Governors Association this spring, and also for fast-tracking the timeframe for granting waivers as provided in the Affordable Care Act (ACA), from 2014 to 2011.

"So far, the Obama administration seems quite willing to entertain state experiments with various aspects of federal health reform implementation, including Medicaid expansion," says Ms. Leonard.

Medicaid is "a political hot potato that no one seems particularly anxious to hold onto," says Ms. Leonard. "If states can figure it out, while meeting the minimum level of benefits and coverage expansion that ACA envisions, I expect the administration to be very agreeable."

Matthew Mitchell, PhD, a research fellow at the Mercatus Center at George Mason University in Arlington, VA, says it helps that block granting has been embraced by people all over the ideological spectrum. "It's not just something that Republicans or conservatives or free market people are talking about," he says. "Some people think that the administration might even be willing to grant a good number of these waivers. They really don't want to set up a fight with the states over this."

However, the administration may be unwilling to give ground when it comes to additional flexibility on eligibility requirements, adds Dr. Mitchell. "That may be a big sticking point that will make administration less likely to work with states on offering block grants," he says. "A hallmark of the ACA is trying to get more people into Medicaid. That is how they will achieve their goal of getting more people covered."

Fewer strings attached

If states can receive block grants with relatively fewer federal strings attached, says Ms. Leonard, they may be able to support successful alternative models of government health care programs.

States have a mixed record of successes and failures with experimentation with Medicaid, notes Ms. Leonard, including Oregon's "rationing" plan in 1993, Tennessee's "TennCare" Medicaid managed care plan beginning in 1994, the Massachusetts comprehensive health reform plan in 2006, and Vermont's single-payer plan in 2011.

Oregon's plan to provide minimum basic health coverage to all low-income adults met with political challenges, adds Ms. Leonard, while TennCare met with financial and administrative challenges.

"But those were bold, controversial experiments, altering many basic premises of Medicaid," she says. "More modest experiments at the state level have been successful to varying degrees."

States have a long history of administering public benefits programs, adds Ms. Leonard, and their on-the-ground expertise could certainly pay off if given the chance. In fact, states may have a different, and perhaps better, sense of which people need care the most and the most efficient way to get care to those people, she says, compared to the federal government.

"Medicaid is a huge budget item in most states, and federal funding never seems adequate to fill the gaps," says Ms. Leonard. "The need for medical care by low-income individuals is enormous."

Removing the additional federal overlay of regulations may ease the administrative burden of running a successful state Medicaid program, says Ms. Leonard. "Increasingly, states are concerned that federal dollars fail to provide adequate funding, and that the federal requirements are too onerous," she says.

Federal Medicaid authorities have been fairly generous in granting waivers to all or parts of state Medicaid programs, she adds. "This notion of states as 'laboratories of democracy,' conducting policy experiments that may be adopted by other states or the federal government, has long been recognized as a value of our federal system," says Ms. Leonard.

However, Ms. Leonard notes that reimbursement levels for Medicaid providers have historically been so low compared to commercial insurance that it is extremely hard to recruit and retain enough physicians willing to see Medicaid patients.

"Even if states figure out how to run Medicaid more efficiently than the federal government, they still face the challenge of how to incentivize doctors to see Medicaid-eligible patients," she says.

Opportunity for changes

Some Medicaid reform approaches will undoubtedly work better than others, says Dr. Mitchell. "Some states will be doing things right, and others will be doing things less right," he says. "In my view, though, even if you do things less right, that's still an opportunity to change. You are not locked into it."

There are no current demonstrations involving cost sharing for patients, or giving patients greater ability to shop around for different providers, or allowing care to be obtained across state lines, notes Dr. Mitchell.

"We don't really know what the results would be, because we have never let those experiments run," he says. "It's still probably a better bet than 'one size fits all.'"

One potential lesson for states, says Dr. Mitchell, involves Tennessee's expansion of Medicaid with its TennCare program, which was later audited by a consulting group. "They said it would bankrupt the state, so they had to dramatically draw back eligibility," he says. "Overnight, 200,000 people were dropped from the Medicaid rolls."

If a state has to suddenly cut back eligibility that was expanded, as occurred in this case, says Dr. Mitchell, "it can be more painful than if you had never expanded eligibility in the first place."

On the other hand, states are taking note of the encouraging results of the Cash & Counseling program, adds Dr. Mitchell, and are waiting to see the response to requests for waivers by states such as Utah and Washington.

Federal government's stance

Dr. Mitchell argues that the federal government's approach in taking reductions in eligibility off the table is short-sighted. "Why would you allow Arizona to stop covering transplants, but Arizona is not allowed to reduce eligibility for those recipients with relatively higher means of either wealth or income?" he asks.

Instead of denying coverage altogether, says Dr. Mitchell, transplants could have been covered on a sliding scale with higher copays for some Medicaid recipients. "That, to me, seems like a reasonable tradeoff," he says. "It seems that the federal government is only looking at one dimension, which is eligibility."

Requests that include some form of cost sharing among recipients are more in line with the approach outlined in the ACA, adds Dr. Mitchell. "If you can get recipients to share even a little bit, even if it's a $10 copay, that encourages them to shop around," he says. "It introduces some measure of price sensitivity and competition."

Contact Ms. Leonard at (706) 542-4309 or weeksleo@uga.edu and Dr. Mitchell at (703) 993-8940 or mmitche3@gmu.edu.