Urban Institute: Block Grants and Per Capita Caps

This issue brief from the Urban Institute highlights another impact of changing federal funding for Medicaid to either block grants or per capita caps: locking in current variations in federal funding among the states. Block grants would give states a fixed allotment based on aggregate, historical spending levels multiplied by a predetermined growth rate. Per capita caps would set the allotments for specified enrollment groups based on historical spending per enrollee multiplied by a predetermined growth rate.

Setting state allocations based on their historical spending levels would lock in the current huge variation in federal dollars sent to each state. Federal funding for Medicaid per low-income person varies by a factor of about 5 to 1 across the states, and funding per enrollee varies by a factor of at least 2 to 1. Thus, some states would get far higher block grant allotments relative to the size of their high-need populations or much higher spending per enrollee than other states. Despite federal matching grants that vary inversely with state per capita income, higher-income states now spend more and would receive the larger allotments or caps.

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