CMS rolls out Medicaid block grant option for states

Key Takeaways

On January 30, the Centers for Medicare and Medicaid Services (CMS) released a State Medicaid Director (SMD) letter encouraging states to pursue block grant or per capita cap funding options through their state Medicaid programs. The initiative, titled the Healthy Adult Opportunity, would allow states to implement a block grant or per capita cap for certain Medicaid beneficiaries.

To adopt the new financing approach, states will be required to submit a Section 1115 waiver outlining how the state would modify its Medicaid program using a capped-funding approach. The letter from CMS indicates that a state may not implement a block grant or per capita cap for its entire Medicaid population. Specifically, this initiative will be focused on the Medicaid expansion population and will target “adult beneficiaries under age 65 who are not eligible for Medicaid on the basis of disability or their need for long-term care, and for whom Medicaid coverage is optional for states.”

State decisions to adopt the block grant or per capita cap option would impact counties, who play a central role in Medicaid’s federal, state and local partnership. Counties contribute to Medicaid in 26 states and, in 18 of those states, are required to finance the non-federal share of Medicaid program administration and services.

Currently, under the Federal Medical Assistance Percentage (FMAP) formula, every dollar a state contributes to medical care for Medicaid beneficiaries is matched by the federal government, meaning there is no cap on how much federal money can be spent on medical care. Implementation of a block grant or per capita caps in Medicaid would eliminate the state and federal match system and use pre-set formulas to determine Medicaid spending.

Unlike the current flexible funding arrangement, these financing approaches would not account for program enrollment or demand for health services and would reduce the overall share of federal Medicaid payments, leaving states and counties to make up for reduced federal spending.  

Counties oppose using block grants and per capita caps in Medicaid as these approaches could force counties to make cuts to program eligibility, benefits and provider payment rates. Counties could also face increased costs for uncompensated care costs for individuals who become uninsured as a result of the reduced federal share in Medicaid payments. 

CMS’ issuance of the block grant plan follows recent legislative and administrative proposals that would fundamentally alter the Medicaid program. In 2019, the agency released guidance for states to implement Medicaid work requirements. Prior to that, in 2017, Congress considered sweeping health legislation – the Better Care Reconciliation Act (H.R. 1628) – that similarly proposed to institute a block grant and per capita structure to Medicaid.

For more information on the relationship between the Medicaid program and counties, please see NACo’s report, Medicaid and Counties: Understanding the Program and Why It Matters to Counties, which outlines the role Medicaid plays in our nation’s health system, how counties contribute to the federal-state-local partnership and key messages for advocacy.

For more information on the CMS proposal and the county role in the Medicaid program, please see the following resources:

• Centers for Medicare and Medicaid Services (CMS) State Medicaid Director letter
• Centers for Medicare and Medicaid Services (CMS) Health Adult Opportunity Initiative Fact Sheet
• Medicaid and Counties: Understanding the Program and Why it Matters to Counties (NACo legislative presentation)