A number of Republican governors are crafting, but haven’t yet agreed on, a health plan that would cap federal funding for Medicaid, leaked documents show. Specifically, the plan would require states to accept a per capita cap or a block grant in place of current federal funding for the Affordable Care Act’s (ACA) Medicaid expansion, and allow states to opt for a per capita cap or block grant for other groups that Medicaid covers, including parents, children, pregnant women, seniors, and people with disabilities. The plan also proposes other damaging changes in Medicaid, such as letting states cap enrollment and deny coverage to eligible individuals.  

Like all proposals to convert Medicaid to a per capita cap or block grant, the governors’ plan would put coverage for tens of millions of low-income individuals and families at risk:

• A per capita cap or block grant cuts federal funding just when the need is greatest. Even if policymakers initially set a per capita cap or block grant to match current federal funding for Medicaid, states would have to cover 100 percent of any unexpected increase in costs. That means that any natural disaster, disease outbreak, public health crisis like the opioid epidemic, or expensive breakthrough treatment that saves lives but adds costs could create a budget and health care crisis for states. They either would have to find billions of dollars more in their own budgets or (more likely) ration care among those who need it by cutting eligibility, benefits, or provider payments.

• Even if a per capita cap or block grant didn’t cut federal funding initially, it would likely still lead to large funding cuts over time. Republican governors may mistakenly believe that the President and Congress would design a per capita cap or block grant to require only modest federal funding cuts, if any. But the main reason that congressional Republicans are considering per capita caps and block grants is to generate large federal savings over time. Moreover, once Medicaid was converted from its current federal-state financial partnership to an arbitrary federal funding cap, Congress could easily ratchet down the cap over time to finance other priorities, shifting more costs to states and forcing them to decide whose coverage to cut.

That’s why Democratic governors yesterday reiterated their opposition to per capita caps and block grants, writing that “proposals to radically restructure Medicaid with block grants or per capita caps would flood states with new costs. Such plans would severely damage the ability of states to provide quality health care, inhibit innovative cost-control reforms, and devastate communities fighting opioid and substance abuse.” Likewise, the AARP has written, “AARP opposes Medicaid block grants and per capita caps because we are concerned that such proposals will endanger the health, safety, and care of millions of individuals who depend on the essential services provided through Medicaid.” And Richard Pollack, the American Hospital Association’s President and CEO, commented yesterday, “redesigning Medicaid, such as through block grants or per capita caps, could lead to substantial changes in benefits and payments and limit the availability of care for patients.” That’s consistent with the position of the bipartisan National Governors Association, which clearly stated in January that any federal changes to Medicaid financing should “not shift costs to states.” 

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But despite its large problems, the Republican governors’ plan also highlights the huge gulf between key Republican governors and Republican congressional leaders on Medicaid. Comparing the governors’ plan with draft House Republican legislation (leaked on Friday) shows that these policy differences would affect tens of millions of people and tens of billions in federal funding – and would be very difficult to bridge.  Similar disagreements among Republican governors are reportedly preventing the Republican Governors’ Association from reaching a consensus on Medicaid.

• In the Republican governors’ plan, the per capita cap or block grant is optional for states except for the population covered under the ACA’s Medicaid expansion. The health policy outline that House Republicans issued on February 16, as well as the leaked draft House Republican legislation, would require all states to convert their entire Medicaid programs to a per capita cap or block grant, affecting all of the program’s more than 70 million beneficiaries. The Republican Governors are proposing this conversion as a requirement for a much smaller number of beneficiaries — the 11 million who have newly gained coverage under the ACA’s Medicaid expansion.  

• In the Republican governors’ plan, the per capita cap or block grant funding levels for states for the Medicaid expansion population reflect a continuation of the ACA’s enhanced federal funding (a federal matching rate of at least 90 percent on a permanent basis). In the House Republican legislation and policy outline, however, the per capita cap or block grant levels are based on states’ much lower regular Medicaid matching rates (averaging 57 percent).  As we’ve explained, that would bring the Medicaid expansion to an automatic end under the laws of seven states, and it would likely prompt the remaining 24 states and the District of Columbia to end their expansions as well. That’s because it would require expansion states to find about $30 billion each year to keep the expansion – the equivalent of these states’ entire general fund spending on corrections, or three quarters of their entire general fund budget for higher education.

• The Republican governors argue that annual caps on federal funds for Medicaid should grow with expected spending and thus produce little or no federal savings. But that flies in the face of what House Republicans envision for the future of Medicaid.  At its core, the House Republican plan seeks to secure large cuts from Medicaid through hefty cost shifts to states, enabling House Republicans to use the federal savings to help pay for their proposed tax cuts. By repealing the revenue provisions that helped pay for the ACA, the ACA repeal bill would cut taxes substantially for people at the top of the income scale and for parts of the health industry.  

Ohio Governor John Kasich, reportedly a leader in developing the Republican governors’ proposals, has made his views on the House Republican plan clear: “It’s not acceptable,” he said, adding that “I’m not going to sit silent and just allow them to rip that [Medicaid expansion] out.”

While Republican governors appear open to radical, harmful changes to Medicaid’s financing structure, they and congressional Republicans remain far apart on an array of policy decisions that federal policymakers face on Medicaid, including the future of the ACA Medicaid expansion, whether and to what extent major structural changes should apply to states’ entire Medicaid programs, and whether policymakers should cut funding for Medicaid to help pay for tax cuts.