Making Medicaid a block grant would curb vital services

Of all the federal programs discussed in last week’s presidential debate, an important one got short shrift: Medicaid. And it’s more pressing than many other health care issues, because so many elderly people rely on it as virtually their only source of funds for long-term care.

There are stark differences in how the two candidates would approach Medicaid, the federal health program for the poor that also covers 60 percent of the Americans living in nursing homes. Mitt Romney aims at much larger savings, but would sharply reduce the number of people with health coverage. The Obama administration, which is already expanding Medicaid to cover millions of new recipients under Obamacare, wouldn’t endanger anyone’s coverage. But neither would the administration’s plan lead to much reduction in projected spending.

Taken together, the plans point to an uncomfortable reality: There is no easy fix for rising health care costs. The best course for Medicaid is to maintain coverage as envisioned by Obama while exploring the possibility for innovation as envisioned by Romney.


Romney’s changes, however, go way too far: He would transform Medicaid from an entitlement program, in which coverage is guaranteed to all who qualify, into a block-grant program administered by the states. Romney asserts that states would find more innovative ways to deliver care.

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But they would have to prove awfully innovative, since the federal grants would increase only at the rate of inflation plus 1 percent, with no adjustment for population increases. In all likelihood, the block grants wouldn’t keep pace with Medicaid costs. From 2007 to 2010, Medicaid spending grew at an annual rate of 6.6 percent; inflation averaged 2.2 percent. A block-grant program with constraints like those Romney favors could reduce predicted federal outlays by more than $1 trillion over a decade. The nonprofit Kaiser Family Foundation has examined the possible consequences of such a reduction. Under the most optimistic assumptions, almost 31 million people would lose Medicaid coverage — some 17 million from Romney’s plan to repeal Obamacare, the rest from coverage cuts resulting from the block-grant approach.

The Obama administration hopes to curb Medicaid costs by reducing duplicative or unnecessary procedures. Overall, its savings are estimated only at about $60 billion to $70 billion over a decade. They would be achieved by pushing best-practices recommendations, which tend to standardize and streamline medical care. Obama’s team points to several years of small increases in health care costs as a sign that real savings can be achieved. Perhaps. But experts note that a lower use of medical services due to the struggling economy is one reason for the smaller increases.

The administration also believes it can achieve savings by reducing its payments for prescription refills, and putting more equipment purchases and home-health services out to competitive bidding. Those may sound like small-bore changes, but such step-by-step savings are the only way to reduce costs without limiting care.

Romney, for his part, is right to look for innovations through state programs. But most states already can, and do, receive federal waivers to explore innovations. Still, whichever candidate prevails should understand that only by embracing innovation can the federal government maintain its commitment to health coverage for the poor and elderly.