NCPA - National Center for Policy Analysis

Medicaid Block Grants and Consumer-Directed Health Care

September 15, 2011

Medicaid is a health program for the poor and disabled funded by federal and state appropriations.  It is the largest and fastest growing publicly funded health program in the United States, says Linda Gorman, a senior fellow at the Independence Institute.

  • State and local government Medicaid spending is projected to rise rapidly from $130 billion in 2009 to $357 billion by 2020.
  • Federal Medicaid spending is projected to increase from $254 billion in 2009 to $574 billion by 2020.
  • Total Medicaid spending is expected to rise to $930 billion by 2020 and will account for 20 percent of all U.S. health expenditures.

There are two major reasons for this growth. 

  • One is that the federal government matches all state spending on federally allowed Medicaid services -- this encourages excess spending. 
  • The second reason is the program's complexity.

States can also apply for federal Medicaid waivers that allow them to test policy innovations.  Waivers, state spending differences, coverage of mandatory and optional populations and services combine to ensure that no two states have exactly the same Medicaid program.

Turning Medicaid into a block grant program in which the federal government gave each state a set amount of money could improve patient care, restrain the growth in costs, reduce complexity and improve outcomes. 

  • Block grants can change Medicaid incentives by eliminating matching fund finance. 
  • States satisfied with their current Medicaid program could continue without change just by meeting a negotiated budget. 
  • States that think they could do better would be free to try something else. 
  • The federal government would manage one Medicaid block grant program rather than 50 different state Medicaid experiments.

Source: Linda Gorman, "Medicaid Block Grants and Consumer-Directed Health Care," National Center for Policy Analysis, September 15, 2011.

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