How Block Grants Can Make Medicaid Work: Improving Health, Decreasing Costs

Medicaid, the joint state-federal health-care program for the poor, presents a large and rapidly growing fiscal burden for states, crowding out spending on other vital public programs. One significant Medicaid policy reform proposed by Republican presidential candidate Mitt Romney and his running mate, Paul Ryan, would block-grant federal support for Medicaid in return for broad state flexibility in designing and implementing Medicaid coverage.

We consider criticisms of Medicaid block grants and suggest a block-grant design (based on bipartisan block-grant welfare reforms enacted in 1996) that encourages states to experiment with Medicaid reforms to help control costs while improving patient outcomes. Federal block-grant goals should encourage states to:

• Design coverage and care arrangements that improve health outcomes for Medicaid recipients through a variety of care options and benefit structures (including co-pays and preferred provider network designs).
• Coordinate and deliver care in the most cost-effective fashion, with an emphasis on preventive care and wellness programs that encourage patients to take more responsibility for maintaining good health.
• Target federal resources in relation to a state’s relative population of low-income and disabled, adjusted for cost of living (this would ensure that poorer states with relatively larger poor and disabled populations would receive more federal aid than wealthier states).
• Encourage the uptake of high-quality private insurance.

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