The Trump administration's Healthy Adult Opportunity waiver follows a long history of Republican attempts to retrench the Medicaid program through block grants and to markedly reduce federal spending while providing states with substantially greater flexibility over program structure. Previous block grant proposals were promulgated during the presidential administrations of Ronald Reagan and George W. Bush and majorities in Congress led by House Speaker Newt Gingrich and House Budget Committee Chair and then Speaker Paul Ryan. Most recently, Medicaid block grants featured prominently in Republican efforts to repeal and replace the Affordable Care Act. This essay traces the history of Republican Medicaid block grant proposals, culminating in the Trump administration's Healthy Adult Opportunity initiative. It concludes that the Trump administration's attempt to convert Medicaid into a block grant program through the waiver process is illegal and, if implemented, would leave thousands of people without necessary medical care. This fact, combined with failed legislative efforts to block grant Medicaid during the last forty years, highlights the substantial roadblocks to radically restructuring a popular program that helps millions of Americans.
The Trump administration has continued the pursuit of the conservative goal to cap spending in the Medicaid program with its Healthy Adult Opportunity (HAO) waiver initiative. Medicaid is an entitlement, which means that the federal government is required to match state Medicaid spending without limit, and states must provide coverage to all eligible residents as prescribed by federal statutes and regulations. The federal medical assistance percentage determines the federal contribution, which, depending on state per capita income, ranges from 50% of total program costs in thirteen states to 77.6% in Mississippi (KFF 2020). In exchange for the federal money, states must cover certain groups of individuals—pregnant women and children, parents of dependent children, older adults, and the blind and disabled—below specified income levels and provide certain benefits such as inpatient and outpatient hospital care, physician services, nursing facility care, and laboratory services, among others. States also may elect to cover several optional populations, mandatory populations at higher income levels, and benefits beyond federal mandatory requirements.
Under a block grant approach, the federal government would no longer provide an unlimited match for state expenditures, nor, under most proposals, would states be required to cover specific beneficiary groups and deliver specific benefits. Rather, the federal government would provide each state with a fixed allotment of federal funding set annually based on a predetermined formula, potentially adjusted each year for demographic and economic factors. The states, on the other hand, would acquire substantially greater discretion to determine Medicaid program structure while undergoing considerably less federal oversight. States would be responsible for covering program costs once their federal allotments ran out.
Proponents have advanced three reasons for supporting the block grant approach (Davidson 1997; Holahan and Weil 2003; Lambrew 2005; Miller 2014). First, supporters argue that state governments are better situated than the federal government to decide how best to appropriate Medicaid funds. Second, supporters assert that state governments are better positioned to meet the needs of their citizens when provided with the latitude to experiment and develop policy without onerous oversight from the federal government. Third, supporters claim that establishing fixed spending would provide the federal government with certainty regarding Medicaid funding obligations.
Critics identify three main reasons for opposing a block grant approach (Davidson 1997; Holahan and Weil 2003; Lambrew 2005; Miller 2014). First, block grants would subject states to financial risk, particularly due to unplanned cost increases that occur during disasters, such as pandemics like the novel coronavirus, and recession-related enrollment growth. The depletion of state allocations would force states to increase spending through tax increases, to cut other programs, or to lower Medicaid program spending through reductions in program eligibility, benefits, or provider reimbursement. Second, opponents point out that, depending on the structure of initial federal allocations, existing inequities in Medicaid funding across states could become locked in. Finally, opponents predict that many states would take advantage of newfound flexibility to reduce benefits and eligibility standards, thereby exacerbating cross-state variation in access to needed care and disparities in health.
A related strategy, per capita caps, often is considered alongside block grants. Unlike block grants, the per capita cap approach may not set limits on overall spending. Instead, per capita caps establish a preset amount each state receives for each individual served, potentially with separate caps established for beneficiary categories to account for variation in costs across groups (e.g., the elderly as opposed to children). Proponents argue that per capita caps would provide less of an incentive to keep enrollment down and may generate efficiencies that reduce the rate of expenditure growth per beneficiary, usually facilitated by providing states with greater flexibility over program design, delivery of care, and administration. Critics point out that the financial strain on states would be substantially similar to the block grant approach, predicting that states exceeding the federal funding cap would be forced to use limited state funds to compensate for the difference or, more likely, to cut back on program eligibility, benefits, or provider payment.
The Trump HAO policy follows a long history of Republican attempts to retrench the Medicaid program through block grants (or per capita caps) to reduce federal spending while providing states with greater flexibility. Previous block grant proposals arose during the administrations of Ronald Reagan and George W. Bush, were proposed by Republican majorities in Congress, and featured prominently in policy platforms for presidential candidates including Mitt Romney and Donald Trump. Most recently, capped spending was an essential element in Republican bills designed to repeal and replace the Patient Protection and Affordable Care Act (ACA). This essay traces the history of Medicaid block grant proposals, which have consistently failed as federal legislative efforts, prompting administrative action through the back channel of demonstration waivers. We trace this history as a direct line to the HAO initiative. We argue that the HAO policy is more threatening than prior efforts because it encourages states to limit Medicaid in new ways, such as through a savings sharing program; offers less federal or state oversight than prior efforts; and encourages states to implement work requirements even though federal courts have stopped them repeatedly. In short, the risk to Medicaid as a safety net program, to increasing disparities across states, and to beneficiaries' health is even greater under the Trump administration's new policy. We also argue that this policy is not a lawful exercise of administrative authority, though block grant legality has not yet been tested in courts. In the end, the HAO initiative is likely to be short-lived given the incoming Biden administration's opposition to capped Medicaid spending.
Past Legislative Proposals to Cap Spending
The Reagan, George W. Bush, and Trump administrations aspired but failed to cap Medicaid spending through congressional pathways. Additionally, Congress has attempted and failed to cap Medicaid spending when Republicans controlled both houses. These efforts reveal federal officials' understanding that the Medicaid Act does not permit limits on federal spending; Congress would need to amend Medicaid's statutory structure for capped spending to be lawful. Yet, as we discuss below, attempts to work around Congress through administrative channels are occurring now and were tried in the past.
Under President Reagan, the Republican-controlled Senate's version of the Omnibus Reconciliation Act (OBRA) of 1981 (S. 1377, 97th Cong.) keyed Medicaid funding under its block grant proposal to the federal share of Medicaid spending in FY 1981 plus 9%, adjusted for the gross national product's price deflator (Lambrew 2005). The administration projected this change would lower federal spending by $9 billion over three years (Rowland, Lyons, and Edward 1988). OBRA 1981 passed, but this proposal was defeated by the Democrat-controlled House and opposed by both Republican and Democrat governors (Morone and Jacobs 2005). Although OBRA 1981 did not fundamentally restructure the Medicaid program, the law provided states new flexibility to pursue mandatory managed care enrollment through Section 1915(b) freedom-of-choice waivers and home and community-based long-term care services through Section 1915(c) waivers, which remain features of Medicaid today. A series of Medicaid program expansions followed during the remainder of the Reagan and first two years of the George H. W. Bush administrations, rejecting retrenchment efforts and reflecting improvement in the national economy.
The 1995 MediGrant proposal (H.R. 2425, 104th Cong.) would have determined federal Medicaid payments by a complicated formula based on historical spending, adjusted annually, with an aggregate cap on federal expenditures (Lambrew 2005). Congressional Republicans projected this would lower average annual federal Medicaid spending growth and result in a $163 billion reduction over 7 years (Devroy and Pianin 1995). Most Republican governors favored MediGrant (Morone and Jacobs 2005; Thompson 2012). But, combined with significant cuts to Medicare and other social programs in the Balanced Budget Act of 1995, President Bill Clinton vetoed the bill (Devroy and Pianin 1995).
Less than a decade later, the George W. Bush administration proposed Medicaid block grants (Guyer 2003). States would have received higher initial federal funding (Lambrew 2005) and new flexibility over delivery, eligibility, and benefits for optional beneficiaries without a waiver process, though comprehensive benefits continued for mandatory beneficiaries. This proposal would have set federal allocations based on FY 2002 spending levels, increasing the amount yearly by the average Medicaid growth rate (Holahan and Weil 2003). The Bush administration sought to build support through a bipartisan taskforce established by the National Governor's Association, but Republican and Democratic members could not agree on fundamental features (Connolly 2003). The lack of gubernatorial support, combined with congressional Democrats' opposition, led the Bush administration to abandon restructuring Medicaid through legislation. Instead, the Bush administration pursued block grants by recruiting states willing to take a cap on federal funding through the Section 1115 waiver process, discussed further below.
The next wave of statutory Medicaid block grant proposals arose with Republican opposition to President Obama and the ACA (Pub. L. No. 111-148).1 Between 2011 and 2017, the Republican-led Congress voted at least 70 times to “repeal, modify, or otherwise curb the Affordable Care Act” (Riotta 2017). Republican proposals to restructure Medicaid emerged in the FY 2012 through 2015 budget proposals as House Budget Committee Chair and later House Speaker Paul Ryan revived the block grant approach (Miller 2014; Park and Broaddus 2014). In addition, subsequent House budget plans and other proposals attempted to limit Medicaid spending. Each of the Obama-era budget plans block granting Medicaid and repealing the ACA passed the House by strict party-line votes. Details were vague, but, for example, one proposal in 2012 by the House Republican Study Committee would have established block grants at 2012 spending levels with no subsequent adjustments for inflation or increases in health care costs.
After President Trump was elected, even more robust congressional efforts to repeal and replace the ACA and to cap Medicaid spending ensued (Friedman, Kogan, and Shapiro 2015; Miller 2014; Nadash et al. 2018). The American Health Care Act, Better Care Reconciliation Act, and the Graham-Cassidy bill included provisions granting states the option to adopt a block grant or per capita cap structure for Medicaid (Nadash et al. 2018). Each bill was unsuccessful despite Republican control of Congress and the White House.
While the politics of the 2017 bills' failure are complex, at least four points are relevant here. First, the ACA repeal and replace bills failed for many reasons, including not only red/blue politics but also objections to the process for voting, which bypassed normal debate procedures yet would have rendered major changes to federal social programs.
Second, the Congressional Budget Office (CBO) played a critical role in assessing the bills' benefits and costs. CBO analyses quantified lost insurance coverage that the bills would have created, projecting increases of 21 to 23 million uninsured over 10 years. In large part, insurance loss would have resulted from repeal of Medicaid expansion and reduction in federal funding related to Medicaid program restructuring (Nadash et al. 2018).
This leads to the third point, that support for Medicaid's continued existence as a reliable safety net is widely understood to have pressured members of Congress to rethink support for these bills. Grassroots movements led to Medicaid expansion ballot initiatives and produced high-profile lobbying by individuals and advocacy groups representing providers, insurers, older adults, people with disabilities, and others. These efforts demonstrated what polls often show, that Medicaid is popular and voters do not want the program undercut.
Fourth, Democratic governors were opposed to repealing the ACA, ending Medicaid expansion, or restructuring Medicaid (Democratic Governors Association 2017; Democratic Governors 2011). In general, proposals to restructure Medicaid received strong support from Republican governors during this era, whereas repeal of the Medicaid expansion received mixed support depending on whether or not a governor's state had elected to expand (Republican Governors Association 2011; Kliff 2017). But these politics were not straightforward either, as Republican governors were in charge of Medicaid expansion in 11 states. And, the people of 4 states voted by ballot initiative to expand Medicaid, further demonstrating its popularity.
Block Grants through Executive Action: The Allure of Demonstration Waivers
Section 1115 of the Social Security Act gives the Secretary of the Department of Health and Human Services (DHHS) authority to approve states' applications for “demonstration waivers” that further the statutory purposes of the Medicaid program. The pace with which the federal government granted both 1115 and other waivers—1915(b), 1915(c)—increased considerably during the presidential administrations of Bill Clinton and George W. Bush, both of whom, as former governors, proved sympathetic to state calls for increased flexibility in administering Medicaid (Thompson 2012; Thompson and Burke 2007; Thompson and Burke 2009). The Clinton administration focused 1115 waivers on moving Medicaid beneficiaries into managed care (usually with eligibility expansions), increasing health coverage for pregnant women and children, and restructuring long-term care service delivery and financing. By contrast, the Bush administration tended to use 1115 waivers to expand eligibility, though with fewer benefits and increased beneficiary cost-sharing; improve access to pharmaceutical benefits; and subsidize private health insurance coverage (e.g., through premium assistance for employer-based plans). Evaluations of varying quality became the norm during the Clinton administration due to the imposition of smaller research budgets and rising workloads resulting from the growing numbers of waiver applications submitted and approved (Thompson and Burke 2007). The Bush administration accelerated the trend toward deemphasizing rigorous evaluation of waiver performance, both through the exclusion of rigorous independent assessment in state waiver applications and a reluctance to share the independent evaluations results that were reported.
After failing to gain traction for its block grant proposal in Congress, the Bush administration sought to implement the block grant approach by recruiting states willing to experiment with an overall cap on federal contributions. The administration's strategy was consistent with Thompson and Burke's (2007) observation that during this period “[the Centers for Medicare and Medicaid Services] acted more as a teacher of the states than as a student of them. . . . ‘Try it, you'll like it’ might as well have been the motto.” Thus, rather than using 1115 waivers as an opportunity to learn from state experiences, the administration sought to use the waivers to structure state Medicaid programs consistent with its preferences (Thompson and Burke 2007). A handful of states with Republican governors considered the administration's proposal (Kaiser Health News2003; Gold 2004; Miller 2014). Governors in most of these states—Connecticut, California, New Hampshire, and Florida—either chose not to pursue this policy, perhaps due to widespread opposition by provider and consumer groups, or were blocked in doing so by state legislatures.
In the end, only two states with Republican governors—Rhode Island and Vermont—volunteered to try a new financial structure in Medicaid that would be implemented through the executive action of 1115 demonstration waivers. Rhode Island opted for a cap on federal spending under its Global Consumer Choice Compact Medicaid waiver, implemented July 1, 2009, and Vermont opted for individual caps for acute and long-term care under its Global Commitment to Health and Choices for Care waiver, implemented October 1, 2005. Since then, Republican politicians and conservative observers have claimed that the successful implementation of the Rhode Island and Vermont waivers illustrate what could be achieved if block grants were implemented nationally (WSJ2013; Heck 2017; Senate Finance Committee 2011).
However, the Rhode Island and Vermont waivers were not block grants as conceived in recent conservative efforts for at least five reasons (Miller 2014; Solomon and Schubel 2019), thereby explaining, in part, why they were pursued and adopted despite overwhelming Democratic legislative majorities in both states. First, neither state received one lump sum of federal dollars. Instead, the basic financing structure of the Medicaid program was kept intact with each state having to spend its own money before receiving the federal match, though, overall federal funding was capped at a fixed amount.
Second, the caps on federal spending established for Vermont and Rhode Island were based on extremely generous assumptions about the rate of program growth. These generous assumptions ensured that the caps would never be reached and that both states would remain in the top quartile of states in Medicaid spending per person in poverty (Thompson 2012). Moreover, Rhode Island negotiated a clause permitting the state to opt out of the waiver agreement between the state and the federal government at any time as a result of unforeseen or untenable fiscal conditions. No true block grant proposal would include an escape clause such as this.
Third, state savings generated by the waivers were much more limited than claimed by block grant proponents. In Rhode Island's case, most savings stemmed from provisions that could have been implemented legislatively or administratively without a global waiver.
Fourth, block grant proposals are intended to save the federal government money or at least make federal budgeting more predictable. This was not the case in Rhode Island, where the federal government spent more money during the global waiver's early years than it would have otherwise. The higher federal spending has been attributed to the generous spending cap, federal economic stimulus expenditures during the Great Recession, and provisions within the waiver permitting federal matching funds for populations and services previously covered exclusively by the state.
Fifth, neither Rhode Island nor Vermont were provided discretion to reduce program eligibility or benefits. Indeed, a major aim in each case was to expand the array of benefits available to program beneficiaries. Furthermore, the federal government maintained an active oversight role. Rhode Island's global waiver required the state to be explicit about the changes made under the waiver's provisions, most notably implementation of the state's nursing home diversion and transition programs, enrollment of all but those beneficiaries with third-party insurance coverage into managed care, and adoption of a new three-tiered system for assessing the level of care required by applicants for long-term services and supports. If the state wished to make changes not so specified, then the degree of federal oversight depended on a three-category system of Centers for Medicare and Medicaid Services (CMS) approval. These categories “I, II, and III” were defined by CMS when it authorized the waiver and established increasingly intense federal review protocols commensurate with the scope of changes proposed.
At the same time, Rhode Island's Democratically controlled legislature passed legislation increasing its scrutiny of Medicaid program changes in part due to stakeholder concern, distrust about transparency, and questions regarding the motives of the Republican administration. Thus, state officials were required to seek legislative approval for certain categories of Medicaid changes before seeking permission from CMS to implement those changes. The result was an onerous oversight process, more extensive than initially intended and, possibly, greater than if the global waiver had not been adopted.
Block Grants after Failed Repeal and Replace
The Trump administration has sought to limit social programs, particularly Medicaid expansion under the ACA, so after Congress's 2017 repeal efforts failed, the administration looked for other ways to achieve the same limitations. In January 2018, the DHHS invited states to implement work requirements and other new policies designed to limit Medicaid enrollment and access to care, such as enforceable copayments and premiums, through demonstration waivers. These waivers have been stayed by federal courts.
On January 30, 2020, the DHHS proposed capped spending in Medicaid by announcing the new HAO policy through a State Medicaid Director Letter (Lynch 2020). The DHHS promotes the HAO as a way to offer states even more flexibility in Medicaid, but, like previous block grant proposals, its primary goal is to limit federal funding so that the federal budget can be reshaped by pushing the cost of medical care down to states. The DHHS's attempt to convert Medicaid into a block grant program administratively through the waiver process is very likely to be found unlawful by courts and, if implemented, would leave many thousands of people without necessary medical care, an especially dangerous policy choice in the wake of the novel coronavirus. To understand the legal barriers that prevent the HAO initiative, some background on the HAO and Medicaid's statutory structure is necessary.
The HAO invites states to request capped spending for the Medicaid expansion population (childless, nonelderly adults) in exchange for limited federal oversight (Verma 2020). The policy is targeted but not limited to the ACA's expansion population. States are invited to submit new demonstration waivers or revise existing programs to change their funding mechanisms, which would involve either an aggregate cap or a per capita cap on federal funds. The policy has many particulars summarized in detail elsewhere (Rosenbaum et al. 2020), such as allowing states to structure expansion population benefits like private insurance, encouraging work requirements, allowing states to partially expand Medicaid (without the ACA's higher match rate), and sharing savings when a state meets financial targets. Our analysis focuses on the revamping of Medicaid's financial structure, without which the remaining details become moot.
Medicaid is an amendment to the Social Security Act (SSA). The DHHS secretary may authorize states to advance the purposes of Medicaid by waiving certain provisions of federal Medicaid law under section 1115 of the SSA. An 1115 waiver, as noted above, allows states to “demonstrate” ways to improve beneficiary coverage, access, delivery, or quality of care. The SSA states, “The Secretary may waive compliance with any of the requirements of section . . . 1902” (See appendix).
Yet, the next SSA section, 1903, is the relevant provision for the HAO policy, as it declares that the secretary “shall pay to each State . . . the [federal match] of the total amount expended . . . as medical assistance under the State plan . . . ” (42 U.S.C. 1396b, emphasis added). By law, the DHHS must match states' Medicaid spending, and the match is not limited. The secretary does not have authority to waive this requirement because section 1903 is not listed in the secretary's 1115 waiver authority. Also, any kind of spending cap—whether per person, by population, programmatic, or otherwise—violates the statutory requirement that the DHHS pay the prescribed federal match for the “total amount” of a state's spending.
Furthermore, section 1903 requires the federal government to match states' Medicaid spending at a rate that is partly determined by a state's per capita income, so poorer states have higher match rates than richer states. Medicaid's open-ended, scaled financing safeguards both state budgets and Medicaid beneficiaries, which is particularly important during a public health emergency (like the novel coronavirus) or economic recessions (such as the one triggered by the pandemic). The unlimited federal match provides states with resources to respond at the very moment that their tax base diminishes and more people seek aid. This federal assurance responds to a long history dating to the Great Depression of states being unable or unwilling to adequately provide for medical care for indigent residents.
Also problematic is the asserted authority for the HAO. The secretary claims to be exercising SSA section 1115(a)(2). Normally, the secretary has authority to approve state proposals for demonstration projects likely to “assist in promoting the objectives” of Medicaid under SSA section 1115(a)(1). Section 1115(a)(2) then authorizes the secretary to spend federal matching funds for state costs not otherwise matchable under section 1903 (sometimes called “CNOM”). CNOM allows the DHHS to pay for aspects of demonstration projects that would not fit within statutorily required matching payments. But separating section 1115(a)(2) from (a)(1) is not a viable approach, because the two subsections are connected by the word “and,” a conjunction that means the two statutory sections must be read together. Furthermore, 1115(a)(2) allows the secretary to pay for additional state Medicaid costs that improve or expand coverage, not to limiting spending.
Another legal hurdle is that, even if the secretary had authority to waive 1903, demonstration waivers must “assist in promoting the objectives” of Medicaid. This requirement is informed by Medicaid's principle statutory objective, to “furnish medical assistance” to low-income people (42 U.S.C. 1396-1). This phrase has been scrutinized throughout the litigation challenging work requirement waivers, each of which has been stayed as arbitrary and capricious and exceeding the secretary's authority. Judge Boasberg of the DC District Court has held repeatedly that Medicaid's purpose is to pay for medical care, not to promote a generalized idea of health, promote independence, or decrease costs.2 This interpretation was adopted and amplified by the federal appellate court, which stated, “The district court is indisputably correct that the principal objective of Medicaid is providing health care coverage.”3 The court struck down the secretary's approval of Arkansas's work requirement waiver because the DHHS fabricated a new purpose for Medicaid.
In light of such judicial opinions, a court very likely would find that the HAO spending caps are an unauthorized administrative act, because they are a new feature of Medicaid that would lead to predictable harms. Any state with capped Medicaid spending under an HAO waiver would need to limit access to care to realize the cost savings predicted by the DHHS and states like Oklahoma and Tennessee (Division of TennCare 2019). The HAO would encourage state actions like restricting enrollment, restricting benefits, decreasing reimbursement rates, restricting prescription drug coverage, and other limitations that impede rather than advance Medicaid's core purpose—to furnish medical assistance.
Block grants face an additional legal hurdle. Administrative agencies have authority to implement the specific laws they administer but not to rewrite a statute. The Administrative Procedure Act prescribes how agencies develop regulations and policies, a process that typically includes publishing notice of proposed rules and inviting public comment, to which an agency must respond before publishing final rules. While interpretive policies may be issued without notice and comment, a new substantive policy cannot. The DHHS did not allow a notice and comment process on the HAO, a new substantive policy. When a state submits an HAO waiver application, the ACA's notice and comment process for waivers kicks in, but that process only addresses whether the waiver application should be approved and not the new policy (42 C.F.R. part 431 ).
Two states have submitted waiver applications to exploit the HAO policy. Tennessee submitted a proposal before the HAO policy was released because its legislature commanded the state Medicaid agency to seek a block grant waiver. Tennessee has a Republican-dominated state government that has resisted Medicaid expansion, even after its state Medicaid agency drafted a Medicaid expansion proposal. Tennessee's waiver application seeks to amend an existing state waiver called TennCare and does not fit neatly into the HAO policy, but it sought block grant permission from the DHHS. On January 8, 2021, Tennessee's waiver application was approved in the waning days of the Trump administration. The 10-year agreement provides the state with lump sum payments based on historical spending and inflation; unlike the traditional block grant concept, federal payments may also rise due to unexpected enrollment growth resulting from recession or public health emergencies such as the pandemic. Under the agreement, the state may keep up to 55% of the savings should spending remain below the cap and if certain quality metrics are met for use on a range of health-related services. The state is responsible for all spending that exceeds the cap. Tennessee's waiver is questionable for all of the reasons stated above and, specifically, because waiver amendments are not the correct process for radical substantive changes to the Medicaid program.
Governor Kevin Stitt was present when CMS administrator Seema Verma announced the HAO, so it was not a surprise that Oklahoma released a proposed application for an HAO waiver soon thereafter. Like Tennessee, Oklahoma has a Republican-dominated state government that resisted Medicaid expansion. Oklahoma's application, called SoonerCare 2.0, is predicated on Medicaid expansion occurring and combines the HAO's limited spending ideas, starting with a per capita cap and moving to an aggregate cap after 2 years. Oklahoma hoped to gain the HAO's promised “shared savings” when financial targets are met. On May 28, Governor Stitt withdrew the state plan amendment application for Medicaid expansion, but the Medicaid expansion ballot initiative was successful, and the waiver application was withdrawn.
Yet, no matter how any state configures a demonstration waiver application, it is very likely that the DHHS's approval, and the HAO policy's substance, will be challenged in federal court. Although it may face some regulatory hurdles that slow the process, such as notice and opportunity to be heard for states that have had waivers canceled, the Biden administration is expected to quickly reverse course on approval of the Tennessee waiver.
Remarkably, the president's Fiscal Year 2020 Budget for the DHHS recognized that a statutory change would be needed to create Medicaid block grants. The budget called for new legislation modeled after the 2017 bills introduced to replace the ACA, which, as discussed above, included block granting Medicaid (DHHS 2020). Congress did not repeal the ACA and did not amend Medicaid, and the DHHS cannot do administratively what Congress could not do legislatively.
The novel coronavirus pandemic has the potential to slow such waiver initiatives as the HAO. As of this writing, none of the other states that expressed interest in capped spending were moving forward. With bumps in the federal Medicaid match in stimulus legislation, it is possible states will not only reject block grants but also even reconsider Medicaid expansion, decisions reinforced by the Biden administration's withdrawal of the former and encouragement of the latter, if they have opted out. Historically, even red states passed on the opportunity to apply for a block grant waiver when economic recessions started, and the pandemic has led to an even more significant economic downturn. Block grants hold more peril than opportunity for state budgets, even under the HAO possibility of “shared savings.”
Contrary to conservative claims, states always have had significant flexibility to shape Medicaid within the bounds of federal law. In fact, states have exhibited remarkable ability to negotiate and win their policy preferences while implementing the ACA and especially the Medicaid expansion, as many states found ways to implement expansion with their own policy preferences through negotiating 1115 waivers (e.g., Arkansas and Indiana) (Gluck and Huberfeld 2018). No evidence indicates that states need additional flexibility, even though states demand it and claim simultaneously that the program costs too much. Indeed, evidence shows Medicaid costs to be less than projected (Glied and Tavenner 2019). The federal rules exist to protect states and to ensure that beneficiaries receive the medical care promised by law.
The HAO attempts to bypass federal law because the administration has been unsuccessful in repealing the ACA. In the face of congressional indifference, the George W. Bush administration also sought to pursue Medicaid block grant policy goals through waivers, but, in the end, the waivers it approved were not actually to create block grants. Successive legislative denial of block grant proposals during the Reagan, Clinton, Obama, and Trump administrations highlight the substantial roadblocks Republicans face when seeking to radically restructure a popular program that supports millions of Americans.
Appendix Section 1115 of the Social Security Act
Sec. 1115. [42 U.S.C. 1315] (a) In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of title I, X, XIV, XVI, or XIX, or part A or D of title IV, in a State or States—
(1) the Secretary may waive compliance with any of the requirements of section 2, 402, 454, 1002, 1402, 1602, or 1902, as the case may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project, and
(2) (A) costs of such project which would not otherwise be included as expenditures under section 3, 455, 1003, 1403, 1603, or 1903, as the case may be, and which are not included as part of the costs of projects under section 1110, shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan or plans approved under such title, or for administration of such State plan or plans, as may be appropriate, and . . .
As amended by Pub. L. 111-152, The Health Care and Education Reconciliation Act of 2010, 124 Stat. 119, 111th Cong.
Philbrick v. Azar, No. 19-773 (D.D.C., Jul. 29, 2019) (New Hampshire); Stewart v. Azar II, 366 F. Supp. 3d 125 (D.D.C. 2019) (second Kentucky decision); Gresham v. Azar, 363 F. Supp. 3d 165, 169 (D.D.C. 2019) (Arkansas); Stewart v. Azar I, 313 F. Supp. 3d 237, 243 (D.D.C. 2018) (first Kentucky decision).
Gresham v. Azar, Nos. 19-5094 and 19-5096, at 10 (DC Circuit Court of Appeals Feb. 14, 2020).