Medicaid Block Grants

February 28, 2011

The Washington Post reports that several governors are advocating that Medicaid be converted to a block grant program. Block grants would free the states to experiment with cost-effective ways to provide health care to low-income populations by removing burdensome federal rules and regulations. Giving states a fixed lump-sum payment would also allow federal taxpayer costs to be directly controlled.

Medicaid spending has exploded, and would further increase under Obamacare as a Cato essay on Medicaid reform points out:

Spending jumped from $118 billion in 2000 to $275 billion by 2010. And even before the 2010 Health Act was passed, spending on the program was expected to double in cost to $487 billion by 2020. The 2010 law will boost Medicaid’s cost by about $100 billion a year by 2020.

According to the essay, block-granting Medicaid and freezing outlays would generate considerable savings to taxpayers:

A better reform would be to block-grant the entire Medicaid program, including both acute care and long-term care, and freeze outlays at the current level. If policymakers block-granted the program and froze spending at the 2011 level, the savings would total about $760 billion over the 2012–2020 period, and annual spending would be reduced by about $190 billion by 2020.

Federal taxpayers cannot afford the program in its current form, and the states do not have the money to fund the program’s expansion under Obamacare. Thus, block-granting Medicaid would be a good short-term reform to get the program’s ballooning spending under control. However, the essay reminds us that removing the federal government from the equation altogether should be the long-run goal:

In the long run, federal Medicaid spending should be phased out completely. After all, funding for the program comes from taxpayers in the 50 states, so we may as well keep the money in the states and allow each state government to determine what sort of health care policy it wants to pursue.


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