Center on Budget and Policy Priorities: Caps on Federal Medicaid Funding Would Give States Flexibility to Cut, Stymie Innovation

This issue brief from the Center on Budget and Policy Priorities describe the impact of changing federal funding provided to states for Medicaid into either block grants or per capita caps, with the explicit intent of reducing federal government spending on Medicaid. While proponents argue that such changes would provide increased flexibility to states to innovate and reduce costs, the drastic reductions in federal funding would force states to restrict access and cut benefits to Medicaid beneficiaries.

The fundamental change in funding to the states would be moving from providing a fixed percentage of Medicaid costs (which can increase with increase need and demand, especially in times of economic downturn when more Americans become unemployed or otherwise lose employer-based health insurance coverage, or have lower incomes) to a fixed amount of Medicaid funding, regardless of need or demand.  This results in a cost shift (savings to the federal government) to the states, to providers (through lower payments), and to Medicaid beneficiaries themselves (through higher cost-sharing obligations or charging premiums).

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