The Test Case That Never Was

Although ultimately withdrawn before a vote, the American Health Care Act (AHCA) proposed by House Republicans would have radically restructured Medicaid by converting the federal government’s open-ended commitment to match state government spending with a per-capita cap on the amount of money a state could receive for each enrollee. An alternative to per-capita caps, Medicaid block grants, is also favored by some Republicans but was not included in this particular proposal. Block grants would replace the federal government’s open-ended financial commitment with a fixed up-front annual allotment for the entire covered population.

Advocates of per-capita caps and block grants invariably cite Rhode Island’s Global Medicaid Waiver as the poster child for block-granting Medicaid nationally. This continued with the most recent debate to restructure Medicaid (see, for example, National Review, The Hill). In the waning days of the George W. Bush administration, Rhode Island’s Republican administration negotiated the state’s global waiver which, beginning in 2009, included a $12.1 billion, five-year cap on total state and federal spending. Block grant proponents point out that Rhode Island was the first state to operate its entire Medicaid program under a global spending cap. In return, proponents claim that Rhode Island received unprecedented flexibility from burdensome federal rules that stymie innovation. They also claim Rhode Island achieved tens of millions of dollars in savings while spending several billion dollars less than the agreed upon cap.

The reality is quite different. Rhode Island’s global waiver was not a block grant.

The reality is quite different. Rhode Island’s global waiver was not a block grant. The state did not receive a lump sum contribution from the federal government. Instead, the global waiver kept Medicaid’s basic funding structure intact—the state had to spend a dollar before receiving the federal match. Furthermore, the cap was based on overly generous assumptions about program growth. As a result, a substantial $772 million cushion was built into the waiver’s fiscal projections, ensuring that the cap would never be reached. Subsequently, the state asked the federal government to remove the cap when renewing the Waiver through 2018, recognizing that the “federal funding cap’s specific value and impact to Rhode Island’s Medicaid spending [had] been minimal.”

Implementation of the global waiver took place in the wake of the Great Recession, making it difficult to distinguish waiver-driven changes from budget-driven efforts to restrain program costs. Indeed, the major factor limiting Medicaid program growth during this period was the level of state appropriations and spending. Under such adverse fiscal circumstances, the state could not expend enough of its own money to draw sufficient federal dollars to exceed the global cap. Notably, the federal stimulus program provided the state with $523 million in additional federal Medicaid dollars to support caseload increases and to mitigate the emphasis on cost containment as a result of the precipitous decline in state revenues during the economic downturn.

Block grant proponents greatly exaggerate savings to Rhode Island under the global waiver.

Block grant proponents greatly exaggerate savings to Rhode Island under the global waiver. The Lewin Group estimated that global waiver provisions resulted in state savings of $22.9 million during the waiver’s first two years. But each of these provisions could have been implemented under other authorities without a global cap. Other initiatives also saved money but cannot be attributed to the state’s global waiver agreement or the global cap. These can be divided among savings from initiatives requiring additional federal approval ($9.4 million) and program management initiatives requiring state agency and/or legislative action ($22.9 million).

Per-capita cap and block grant proposals are designed to save the federal government money. The Congressional Budget Office estimated that the Medicaid per-capita cap and Medicaid expansion repeal provisions of the AHCA would have reduced federal Medicaid spending by $880 billion over the next ten years, resulting in 14 million fewer enrollees in the program by 2024. The Center for Budget and Policy Priorities estimated that a previous House Republican plan to block grant the program would reduce federal Medicaid spending by approximately $1 trillion over ten years, $2.1 trillion when accounting for repeal of the Medicaid expansion. Under Rhode Island’s global waiver the federal government actually spent more money than it would have otherwise. This is reflected in the overly generous global cap, federal stimulus expenditures and provisions of the waiver permitting federal matching funds for populations and services previously covered by the state alone.

Under such circumstances, enhanced state flexibility would represent a Hobbesian choice between raising taxes to previously unheard of levels or severely cutting back on program beneficiaries…

State governments administer Medicaid within broad parameters established by the federal government. Per-capita cap and block grant proposals typically offer states broader discretion across most aspects of Medicaid program decision-making in exchange for substantial reductions in federal financing. The global waiver granted Rhode Island increased discretion over certain program areas specified in the state’s agreement with the federal government. But the federal government still maintained an active oversight role monitoring other program changes. Due largely to stakeholder concern and distrust, Rhode Island’s state legislature gave itself a key oversight role as well. The result was a somewhat burdensome oversight process, certainly more extensive than originally envisioned and, perhaps, greater than if the global waiver had not been pursued.

Financially, Rhode Island’s global waiver was much more generous than what per-capita cap and block grant proponents envision. Administratively, Rhode Island did not receive nearly as much discretion over Medicaid program changes as states will if per-capita caps or block grants are adopted nationwide. Rhode Island officials thus did not need to navigate the stark political landscape states would face when attempting to fill in the gaping holes left in their budgets as a result of federal fiscal retrenchment. Under such circumstances, enhanced state flexibility would represent a Hobbesian choice between raising taxes to previously unheard of levels or severely cutting back on program beneficiaries, benefits, and payments with tragic consequences for health care access and quality and, ultimately, population health.

“Rhode Island: The Test Case That Never Was for Medicaid Restructuring” was originally published on March 30, 2017 on the Gerontology Institute Blog, UMass Boston. 

Feature image: Joe King, Sunset over Rhode Island state house, used under CC BY-NC 2.0