Bush likes Blocks: The White House Hopes to Change Medicaid Funding

President George W. Bush is likely to propose spending limits for Medicaid, the public health insurance program that serves about 34 million low-income Americans, many of whom are elderly and/or disabled.

Setting limits on an entitlement program like Medicaid would reduce federal spending but shift the burden to cash-strapped states and counties, which may raise local taxes to make up the difference.

Bush’s budget is likely to pair spending limits for entitlement programs with spending increases for homeland security, a higher priority for the administration. Mr. Bush plans to submit his budget proposal for fiscal year 2006, called The Spending Control Act, on February 7, 2005. Notice the descriptive title of all bills. They tell you what they want you to remember. For Mr. Bush it is controlling spending because tax cuts and big expenses have created a serious shortfall in needed tax dollars.

Medicaid - the basics

Medicaid is a federal and state program that has provided healthcare to low-income citizens since 1966. All citizens who meet eligibility requirements are entitled to Medicaid health care services.

States decide who is eligible for Medicaid, how much money to spend on the program, and how it will be structured. The federal government then matches state funds.

Currently, federal Medicaid payments are based on actual health costs and enrollment. The White House would rather fund the program with lump-sum payments, called block grants.

Bush wants block grants

As he did in 2003, President Bush is likely to propose that the federal government award block grants instead of matching states’ spending. After receiving its block grant for the year, states would not get further assistance.

Proponents of this policy tend to use two key words to defend it: "accountability" and "flexibility." In this context, "accountability" suggests that states will be forced to manage Medicaid funds more carefully and "flexibility" means that states will no longer have to meet strict federal funding guidelines.

Opponents of the plan, including the National Governor’s Association (NGA), say that states should not have to cover Medicaid costs because the federal government does not want to pay.

In a recent letter to The White House, the bipartisan NGA argued that the administration should not look to Medicaid to reduce the federal deficit, especially when states have their own looming debts.

Although many Republican and Democratic governors are against block grants for Medicaid, New York Governor George E. Pataki seems undecided on the issue. Governor Pataki’s opinion in this matter is important, since New York has the largest Medicaid program in the country. If Pataki endorses Bush’s plan, it will have a greater chance of winning public support.

Although New York’s state legislature is opposed to block grants, Pataki may sanction them, since block grants have historically succeeded in New York, at least in the short term.

Some history and some analysis

In 1996, President Bill Clinton shifted to federal block grants for state welfare programs, and many states, including New York, received extra money in the short term since the grants were calculated when welfare programs had record-high enrollment but were received after many people had been forced out of the program.

The Pataki administration believes that the same may happen with Medicaid block grants, so the state would not be forced to cut benefits immediately. However, most governors are afraid that, in the long term, states will be forced to raise taxes or cut benefits or both.

In addition, this plan may cause severe inequalities among states. Since it allows for a lot of state control, care will vary substantially from state to state. Some fear that this will diminish the quality of care overall because states do not want to have drastically better Medicaid programs than their neighbors. This is because people will move to the more generous state in order to receive better benefits, thus increasing the number of people on Medicaid and the population of poor people in that state.

Why a spending limit?

The proposed changes to Medicaid have a broader context. The Bush administration would like to limit the growth of many federal programs, including Social Security, Medicare, health benefits for retired federal employees, and disability compensation for veterans.

Cutting back on these programs would help to decrease the national deficit, which hit a record high of $413 billion in 2004. Bush has promised to cut this number in half by the end of his term in 2008 and believes that the best way to do this is to restrict spending on expensive social programs.

Entitlement programs amounted to 54 percent of the 2004 budget, and without reform, the Congressional Budget Office says that they will consume 58 percent of the budget by 2014.

But even though entitlement programs like Medicaid are getting more expensive, the ballooning deficit is largely due to less revenue (tax cuts) and greater spending (homeland security and the operations in Iraq and Afghanistan).

Any decision to cut back on social programs is the result of a specific philosophy: public money should be used for defense, security, and national infrastructure, but workers should otherwise keep their hard-earned dollars and pay for health care, childcare, and other human services themselves.

Do you agree with this philosophy? How do you want your tax dollars to be spent? Does your representative know your opinion?

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Posted on: 1/13/2005