As Block Grants Resurface, Does CMS have the Authority?

A recent news article suggests that Trump Administration officials are considering allowing states to receive their Medicaid funding through a block grant.  The article did not specify how CMS would accomplish such a goal without a statutory change.  Details are supposedly being developed, but until we see those details, it’s hard to know exactly what the agency is considering.

My colleagues and I at the Medicaid and the Law Blog thought it might be helpful to provide some background on the concept of block grants in Medicaid, a little bit of history, and some ideas on a possible pathway the Administration could use to achieve this goal. We’ve touched on this topic previously, but thought a refresher was appropriate in light of the recent news reports.

As it exists right now, Medicaid is an open-ended entitlement program.  That means that for anyone who meets the criteria for eligibility, a state Medicaid plan “must make medical assistance available” to them.  “Medical assistance” is a list of health care items and services that states either must cover, or may cover.  States generally decide eligibility standards and what forms of “medical assistance” will be made available, but within strict federal standards.

For example, states must cover low-income pregnant women under Medicaid.  States must provide inpatient hospital services to Medicaid enrollees.  States have the option to cover the expansion population under the Affordable Care Act.  States have the option to cover adult dental services.  But regardless of whether a state must cover an individual or a benefit (mandatory populations and benefits) or may cover an individual or benefit (optional populations and benefits), once the state incurs an “expenditure for medical assistance” on behalf of a Medicaid beneficiary, the federal government matches that expenditure in accordance with the state’s medical assistance percentage.  The statute mandates this matching payment.

In its purest form, under the concept of a block grant, states would be given a set amount of money from the federal government (presumably bearing some relationship to amounts spent for medical assistance in a prior year) and could spend the money as they see fit.  A state could design its own eligibility standards and its own benefit design.  But the price would be that if the state exceeded budgeted expenditures, the federal government would not provide any additional payments. In other words, limitless matching dollars would no longer be available.

The concept of Medicaid block grants has been around since at least the Reagan Administration.  During the Clinton Administration, the federal government was shut down (sound familiar?) for three weeks because of a dispute in large part centered around Congress’s insistence that Medicaid be converted to a block grant program and President Clinton’s refusal to agree to block grants.

Although block grants are generally seen as a conservative health policy idea, during the George W. Bush Administration, two states (Rhode Island and Vermont, hardly bastions of conservative ideology) sought and received approval for a cap on Medicaid spending for their state Medicaid programs.  And although it is safe to assume that President Obama would not have supported an extension of the Medicaid block grant concept, it is apparently resurfacing now that President Trump and his political appointees have taken office.

But without Congressional action, how could it happen?  As we just noted above, the statute mandates federal matching payments whenever a state incurs an expenditure for medical assistance.  It’s pretty clear:  take a look at section 1903(a)(1) of the Social Security Act (we’re sure you have a copy hanging around at home):  “The Secretary [CMS] … shall pay to each State … an amount equal to the Federal Medical Assistance Percentage … of the total amount expended … as medical assistance.”  In other words, if the block grant amount constitutes “medical assistance,” CMS is required to match “the total amount expended” under the law.

So how can CMS get around the law?

As we have written about here before, one option is for the state to apply to CMS for a waiver.  But a waiver is not a license for a state to just ignore the law.  Under the Medicaid program, CMS can grant a waiver if doing so will, in the judgment of the agency, “promote the objectives” of Medicaid.  A block grant of Medicaid funds may be deemed to “promote the objectives” of Medicaid in the judgment of a Republican Administration; the law gives that discretion to CMS, even though a Democratic Administration may not agree.

But to us, the real issue is what is being waived.  The law only permits waivers in two instances:

  • To dispense with any of the operational requirements on states under the Medicaid program (which is not at issue here); and
  • To treat a cost as medical assistance even though the law does not allow it to be so treated.

But under a block grant, the state would be asking to do the opposite.  They are not asking to treat a cost as medical assistance; they would be asking to treat a cost that is medical assistance as not constituting medical assistance.

It may be that CMS officials and the general counsel’s office at the Department have another theory outside of the waiver regime.  We do not know.  What we do know is that we’ll be very interested and watching closely to see the pending CMS announcement.

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