Senate Republicans Introduce Medicaid Block Grant Legislation

Yesterday, Senators Tom Coburn (R-OK), Richard Burr (R-NC), and Saxby Chambliss (R-GA) released a proposal to reform the Medicaid program. Their proposal is in some ways similar to the Medicaid changes incorporated in the House Republican budget.

Their proposal would create a block grant for most of Medicaid starting in 2013. Just about all services provided under Medicaid and CHIP would be included in these grants, with the exception of acute care for low-income elderly individuals and the disabled, who would be held harmless or enrolled into managed care. As you would expect from a block grant proposal, states will have the ability to set eligibility criteria and determine benefit levels and other details of the provision of care. In addition, the legislation would repeal the health care law (PPACA), except for the fraud provisions. Another section of the law would give states incentives to limit medical malpractice costs. 

The funding levels for these block grants is based on total Medicaid spending in 2010 (excluding money from the stimulus bill), with the allocations to states based on the number of residents who are at or below the Federal poverty level. Once the initial block grants are made in 2013, they would be adjusted by changes in the CPI-U and population growth -- as the House Republican proposal would.

Although there is no score provided, given the information available, our very rough estimate is that this block granting proposal would reduce spending by about $400 billion. Repealing the health reform legislation, conversely, would increase the deficit by about $200 billion. Therefore, on net, our guess is that these changes would result in about $200 billion in deficit reduction over ten years. There may be additional savings from placing dual eligibles in managed care and encouraging state tort reform, but we do not have enough information to estimate these savings.

The graph below shows total Medicaid spending under current law, if the health care law were repealed, and if the repeal were combined with the block granting measures proposed by Senators Coburn, Burr, and Chambliss. Once again, note that the block granting numbers are very rough estimates.

We applaud the three Senators for putting out another plan to get Federal health care costs under control. Since that area of the budget is the biggest driver of our long-term deficits, any reform proposals in health care programs are certainly welcome additions to the ongoing budget debate.