Block Grants are Fiscally Irresponsible for Texas
Many lawmakers are calling to change the way Medicaid is funded by switching to block grants. By definition, a block grant is a fixed amount of funds allotted to the states, and proponents of it cite the "increased flexibility" as a reason for their support. Unlike some states like New York or Pennsylvania, however, the population of Texas is growing at a fast pace. An appropriate amount of money for Texas in 2011 will not be appropriate in 2015, but that is what we would get.
Texas would have to use the same amount of money to cover more and more people. By contrast, states like Michigan with a declining population will be the winners in this scenario: as their population decreases, they get more and more money per person as their block grants remain constant.
No amount of "flexibility" will help Texas cover more people with less money. Texas has a large baby boom population, and as they age, we will need as much help as we can get to provide care for our elderly. Block grants might make sense for a federal government hoping to cut Medicaid spending, and they might make sense for a state with a declining population, but our state is different. Lawmakers who call for Medicaid block grants are simply asking for more money to go to states like New York and Pennsylvania and less money to come back home to Texas.
How does Medicaid work now?
Medicaid provides healthcare to low-income and disabled populations. Unlike Medicare, which is completely funded by the federal government, Medicaid is funded jointly by the states and the federal government. Currently, the federal government pays a fixed percentage of all incurred Medicaid costs. This rate is called the Federal Medical Assistance Percentage (FMAP). The FMAP is different for each state, as it is determined by factors such as the state’s relative wealth (lower income states get more federal help). Currently, Texas’ FMAP is slightly below 60%, which means that for every $100 the State spends on Medicaid care, it is reimbursed roughly $60 by the federal government. In return for this open-ended promise of funding, the federal government requires states to set up their Medicaid programs in a way that meets certain minimum standards (for example, covering pregnant women whose incomes are below 133% of the federal poverty level).
By moving to block grants, however, we would move away from a fixed rate of federal reimbursement to a fixed amount of dollars of federal reimbursement. So, instead of guaranteeing to pay for 60% of Texas’ Medicaid costs, the federal government instead would simply give a certain amount of dollars to the state.
This gets us to allowing states "flexibility." Much like "states’ rights," the desire for "flexibility" might sound innocuous until one considers "flexibility to do what?" In this case, proponents of block grants on the state level desire the flexibility to reduce Medicaid benefits and/or raise eligibility standards so that less people qualify for these health benefits and those who do qualify receive less benefits. Much like the talk of pulling out Medicaid, moving to fund it through federal block grants would be bad public policy and a poor choice for Texas.
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