CMS Unveils New Trump Administration Policy on Medicaid Block Grants

Published March 9, 2020

At the center of the comprehensive plan unveiled January 30 by the Centers for Medicare and Medicaid Services (CMS) is a provision that will allow states to apply for block grants and receive a fixed, or capped, federal payment for all able-bodied adults in the program—and be exempted from some Medicaid requirements. Currently, funding for state programs is uncapped but states must work within strict federal parameters. 

The “Healthy Adult Opportunity” (HAO), like block grants, provides states extensive flexibility to design and administer their own low-income health care programs within a defined budget. Participation in HAO would be strictly voluntary and is open to all states.  

Limited Population, Defined Budget

HAO’s focus is on a limited population: people under 65 who are not eligible for Medicaid on the basis of disability or need for long-term care services, and who are not eligible for Medicaid under a state plan. Other very low-income children, parents, pregnant women, elderly adults, and people eligible for Medicaid on the basis of a disability will not be affected by the program—except,  “from the improvements that result from states reinvesting savings into strengthening their overall programs,” states a CMS news release.

Under HAO, states will be required to follow all federal disability and civil rights laws, provide CMS with regular reporting on performance metrics, adhere to key statutory protections for tribal beneficiaries, maintain benefits that meet Essential Health Benefits (EHB) standards, and ensure that the aggregate limits on premiums or cost sharing do not exceed 5 percent of family income. States choosing to participate will be granted authority to conduct a number of measures:


            1.   Adjust cost-sharing requirements to incentivize high-value care.

2.   Align benefits more closely to what is available through a commercial benefit package.

3.    Improve negotiating power to lower drug costs by adopting a closed formulary—a list of medications Medicaid would cover—similar to those provided in the commercial market.

4.    Make timely programmatic adjustments without federal approval.

5.    Deliver care through innovative care systems.

6.    Waive retroactive coverage and hospital presumptive eligibility requirements.


Block Grants and Medicaid Expansion

States that expanded Medicaid eligibility under the Affordable Care (ACA) receive open-ended, federal matching funds for Medicaid, with the federal government paying 90 percent of the costs of Medicaid expansion and the states providing the remaining 10 percent. The ACA permitted states to expand Medicaid coverage, and the number of people enrolled in the program rose to almost 75 million.

With higher numbers came higher costs, and the HAO is an effort to rein in those costs.  How much participating states would receive in their block grants would be based on overall or per capita budget targets tied to inflation. Indeed, total expenditures for covered populations in excess of the annual budget will not be eligible for Federal Financial Participation. The budgets will be negotiated between CMS and the states based on the state’s historic costs and other factors, including national and regional trends.

Mixed Reaction

Many health care providers contested the proposal. The American Medical Association (AMA) “opposes caps on federal Medicaid funding, such as block grants, because they would increase the number of uninsured and undermine Medicaid’s role as an indispensable safety net,” Patrice Harris, AMA president, said in a statement.

Lawsuits are common in major regulatory actions, and opponents of HAO are certain to take the administration to court. Plaintiffs, notably special interest advocates, can be expected to argue CMS lacks the authority to change the funding mechanism of the program.

Other entities involved in implementing Medicaid are decidedly less hostile. Most states subcontract Medicaid to managed care organizations such as Anthem, Centene, and UnitedHealthcare. These managed care companies, which cover more than 21 million Medicaid patients nationwide, may face headwinds on Wall Street, says one analyst, but investors need not worry.

“We believe the probability that block grants will be implemented is extremely low,” Steven Halper, analyst at Cantor Fitzgerald, wrote according to Barron’s.

For its part, the health insurance industry declined to take a position on the administration’s move. 

“We support offering state policymakers flexibility to design their Medicaid programs to best meet the needs of their citizens,” America’s Health Insurance Plans said in a statement, adding “funding mechanisms for Medicaid should not undermine Americans’ access to the care they need and deserve.”

More certain about HAO’s success is Joseph Antos, health care and retirement policy scholar at the American Enterprise Institute and policy advisor to The Heartland Institute, which publishes Health Care News.

“HAO is an attempt to address two long-standing concerns. States do not have enough flexibility to run their own Medicaid programs and matching grants discourage state efforts to promote efficiency in Medicaid,” Antos said. “This initiative is the latest in a series of waiver opportunities for states looking for relief from the administrative hassle required to make even modest changes in their programs.” 


Bonner R. Cohen, Ph.D., ([email protected]) is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow.