Block grants and shock events

Politico reported late last week that the Center for Medicare and Medicaid Services (CMS) wants to block grant Medicaid through the 1115 waiver process.

A block grant transfers all shock risk to the state while potentially allowing the state wider flexibility to cut services and not cover certain, current mandatory populations.

I want to look at the risk transfer component first. Right now if a state has a significant expense shock to its Medicaid population, the federal government absorbs at least half of the expense and in some states, up to three quarters of the incremental expense will be paid for by the federal government through the normal FMAP process. For the expansion population, an expense shock will have the state only bear up to 10% of the incremental and unexpected shock. Conversely a state that manages to save money will only see a small portion of the effort show up on the state budget.

What could an expense shock look like?

I spent some time a few years ago freaking out about Zika.

We also know that locally transmitted Zika infections will not be uniformly distributed. Alaska will have far fewer proportional Zika infections than Florida. We also know that one of the major policy planks of the Republican trifecta will be to block grant Medicaid on a per capita basis…. States with disproportionate clustering of high cost conditions will be significantly worse off….

There could be other emerging, infectious diseases that have expensive long run prognosis that are not uniformly and randomly distributed.

Technological shocks are also a major concern within block grant schemes. The Hep-C anti-viral cures are a massive technological shock. They are very cost effective for the improvement in the quality and quantity of life but they are very expensive as they bring forward significant future costs to a three month treatment window. They are a cash flow problem for Medicaid entities even with high federal matches. They would be a cash flow disaster for states with block-granted federal funds as the technological/financial shock of a state being required to pay for effective, efficient but expensive cures would be entirely on the state’s marginal costs.

Enrollment shocks are another major issue. Enrollment eligibility goes up when the economy goes down. A state has the least capacity to take on new enrollment during the time of the highest demand in the middle of recession. It would be worsened under a block grant schema unless Congress relaxes funding in a counter-cyclical manner. Right now, the funding shock of 51 mini-Hoovers is at least partially counter-acted by the automatic stabilizer of the federal matching component.

The most notable shock is the natural disaster shock. Puerto Rico was walloped by Hurricane Maria. Population health declined significantly after the hurricane. Puerto Rico’s Medicaid program is running out of resources and funding for treatment. Puerto Rico is currently on a block granted Medicaid program and it can not handle the after-effects of a massive external shock event.

The US Federal government is the globe’s biggest, deepest, and most experienced risk bearing and risk sharing entity. It can engage in massive counter-cyclical debt financed spending. It can shift resources between disparitely impacted geographies. It can spread risk over a hundred year time frame without too much effort. States can’t absorb those shocks anywhere nearly as well as the pools are far shallower and the ability to access financing in excess of immediate tax revenue is far more constrained.

18 replies
  1. 1
    Edmund dantes says:

    Think you had an old tweet on your copy and paste. Don’t think that Dem primary field one is what you were going for on this post.

  2. 2
    p.a. says:

    Who is CMS? How are they appointed? Can CMS be ‘Federalist-Society-ized’ by Congress or executive?

  3. 3
    Steve in the ATL says:

    Tl, dr: block grants bad!

    But we have known this, because the republicans have been pushing for it for many, many years, and they only push for things that are bad.


  4. 4
    Sheila in nc says:

    @p.a.: CMS is the Center for Medicare and Medicaid Services. It’s part of the Department of Health and Human Services I the Administration.

  5. 5
    BruceJ says:

    The US Federal government is the globe’s biggest, deepest, and most experienced risk bearing and risk sharing entity.

    But that eliminates all the fun from denying poor people medical care! Remember: The cruelty is a feature, not a bug.

  6. 6
    But her emails!!! says:

    Maybe states could join together and pool these resources together to help offset the risks you listed above. Oh, wait…

  7. 7
    sherparick says:

    She was appointed by Putin’s puppet and is one of the reasons the Conservative Movement is all in on Trump. He is giving them all their policy wet dreams (and nightmares for the rest of us). By the way, Seema Verna and Eric Hagan would be a good persons to start the impeachment process on for “failure to faithfully execute the laws” of the land between their efforts to sabotage ACA, Medicaid, and Medicare.

    Another reason the Republican Business/Donor class is okay with Trump’s treason is that he has, between Gorsuch and Kavanaugh and all the other Federalist judges on the courts and corporate lobbyists destroying regulations and agencies throughout the Federal Government.

  8. 8
    Another Scott says:

    Thanks for this. We’ve had lots and lots of examples since ~ mid-2006 that pushing federal responsibilities to others (states, private concerns, unelected quasi-governmental organizations, the people) is a bad idea.

    As Krugman says, “The federal government is an insurance company with an army.” It does a great job at spreading risk and protecting us all from “tail risk”. Anyone who wants to push those risks to smaller groups has a huge burden of proof.


  9. 9
    low-tech cyclist says:


    Remember: The cruelty is a feature, not a bug.

    All too true. And when you start with how bad an idea block-granting Medicaid would be even in the unlikely event that it was totally well-intentioned (as David explains here), and you add intentional cruelty to potential aid recipients on top of that, it’s one serious fuckup.

  10. 10

    @low-tech cyclist: Seema Verma even looks the part of the evil witch. With that cruel mouth and the ugly haircut.

  11. 11
    cmorenc says:

    Ideologically, the “Federalist Society” vision if of the national government as a federation of states bound together for defense and maintenance of commerce, but with each individual state as the fundamental unit of most other aspects of governance. True, the name “Federalist” also refers to the Federalist Papers written by Madison, Hamilton, and Jay, which they interpret as supporting this narrowly constrained conception of the federal government, ignoring the fact that Hamilton’s vision of a more pervasive, actiistically involved federal government was what prevailed, capped by the Union victory over the Confederacy 85 years later. A key factor why the Confederacy lost the Civil war and the Union army won wasn’t just the greater resources and manpower of the Union army (which factors weren’t enough for the US to prevail in e.g. Vietnam), but the cripplingly weak Confederate government’s inability to give coherent strong support to the Confederate war effort among the participating states.

    The practical reason the “Federalist” society worships the alter of individual state control is that they regard states as easier for the wealthier “maker” class to control and contain the would-be “takers” than with the federal government post New-Deal. On the cruelty angle, their vision makes it easier to keep the would-be takers in their proper subjugated place, unable to reach into “maker’s” pockets. Of course, some among them enjoy the hard-ass “tough love” aspect of starving the poors.

  12. 12
  13. 13
    Ohio Mom says:

    Oh crap.

    I am late to my morning check of blog post titles because I am in the midst of gathering documentation for Ohio Son’s annual — wait for it — Medicaid renewal.

    They need bank statements from dates I never have (e.g., December 1-31 for accounts that only issue quarterly reports, or from accounts that send out statements mid-month), and forms from employers who just as soon not fill them out.

    It’s time-consuming, anxiety-producing, and critical to get right. I don’t know how less sophisticated families do it.

    And now this. Hoping that when I have time to carefully read this post, it won’t seem as bad as it sounds. But I probably LOL myself.

  14. 14

    @Ohio Mom: this “prove you are poor enough to get care” is totally for the birds. At least Washington State doesn’t have a work requirement, but I still had to file 48 pages of documentation, once upon a time.

  15. 15
    silvery says:

    Thanks for this post, it has nice usable examples I can reiterate to friends and family.

  16. 16
    Ohio Mom says:

    @Raven Onthill: The way I look at it, at least I don’t gave to prove Ohio Son is still disabled every year. That would be even more involved than proving he is still poor.

    This is a little-appreciated aspect to disability in the US: the legal and financial administration and record-keeping, from sheltering whatever assets the person has, to reporting any income on a monthly basis, to keeping careful records of how SSI was spent, lest you are spot-checked.

    It never stops, and it’s complicated.

  17. 17
    Raven Onthill says:

    @Ohio Mom: the system is miserly, and spends money on being miserly.

    An IRS tax lawyer once told me that the IRS would not spend dollars to recover nickels, but that is exactly what all the means-tested social insurance programs do.

  18. 18
    Eolirin says:

    How likely is it that they’ll be able to actually pull this off and how hard will it be to undo it if it’s done without congressional action?

    This is all sorts of terrifying to me.

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