Health Policy Online No. 6
The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
Note: This report is available in its entirety in the Portable Document Format (PDF).
The Bush administration has proposed major modifications to the Medicaid program.2 Under its proposal, each state would have the option to obtain more flexibility in program design if it accepts a predetermined allotment of funds in lieu of the open-ended matching funds of the current program. Medicaid, which covered 47 million people at some point during FY 2002 at a total (state and federal) cost of $256 billion, is now as large as Medicare. Payments for Medicaid account for 43 percent of all grant funds transferred from the federal government to the states. Changes to this program have major implications for the health care system, the people covered, and the relationship between the states and the federal government.
Transforming a program that has operated as an individual entitlement with an open-ended funding commitment from the federal government into a block grant has substantial and complex implications that represent fundamental ideological choices.3 While accepting the offer of a block grant is up to each state, having this option available is likely to change the federal government's approach to administering Medicaid. States that opt for the block grant will presumably be barred from returning to the traditional Medicaid design in order to prevent gaming, thereby constraining the options available to future state lawmakers. All told, converting Medicaid into a block grant changes the states' and the federal government's incentives and options, which will yield changes in the program, some predictable and some unknown. This paper examines these changes and discusses their consequences.4
Note: This report is available in its entirety in the Portable Document Format (PDF).
1. John Holahan is director of the Health Policy Center at the Urban Institute. Alan Weil is director of
the Assessing the New Federalism Project at the Urban Institute.
2. Information on the administration's Medicaid plan can be found at "HHS Secretary Tommy G. Thompson Announces Medicaid Reform Plan" (
http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=766), January 31, 2003, and U.S. Department of Health and Human Services, "FY2004 Budget in Brief," February 2003.
3. The Bush administration does not refer to its proposal as a block grant. The administration's budget proposes to give states "significant flexibility" to spend what it calls "lump-sum allotments," which are determined in advance by formula.
4. Other reviews of the implications of a Medicaid block grant can be include Cindy Mann, "The Bush Administration's Medicaid and State Children's Health Insurance Program Proposal," (Washington, D.C.: Georgetown University Institute for Health Care Research and Policy, February 10, 2003); Cindy Mann, Melanie Nathanson, and Edwin Park, "Administration's Medicaid Proposal Would Shift Fiscal Risks to States" (Washington, D.C.: Center on Budget and Policy Priorities, April 1, 2003); and J. Guyer, "Bush Administration Medicaid/SCHIP Proposal" (Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, May 12, 2003).
The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
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