The Republicans’ $370 Billion Cut to Medicaid

AP Photo/J. Scott Applewhite

House Speaker Paul Ryan meets with reporters on Capitol Hill. 

According to Republicans in the House of Representatives, block grants “give states the freedom to tailor their individual programs to address the diverse needs of communities.”

According to the historical record, block grants are thinly disguised budget cuts.

In their newly released plan to “repeal and replace” the Affordable Care Act, Republicans are proposing to convert Medicaid—the program that provides health coverage to almost 100 million low-income Americans each year—from a program that expands with need and thus provides a reliable safety net, to a type of block-grant program called a per capita cap. This funding mechanism provides states a fixed amount of federal Medicaid dollars per recipient with loose restrictions on how the money can be used. But the level of funding provided to the states declines dramatically.

According to a new estimate, the House Republican health plan could lead to $370 billion in lost federal support for Medicaid over the next decade. Unless states came up with that money themselves—and the fair assumption is that they wouldn’t—millions of low-income people would lose their coverage.

Republicans have also proposed block granting other important safety net programs such as SNAP (the Supplemental Nutrition Assistance Program, formerly called food stamps).

Such proposals are typically accompanied by who-could-object names like “Opportunity Grants” and “State Flexibility Funds.” They’re touted as a way to “really cut out the fraud, waste and abuse [in federal programs] and … get … help directly” to “people in need,” as Trump Counselor Kellyanne Conway argued in January. Yet, as is so often the case in D.C., the rhetoric doesn’t match the reality. The flexibility that block grants provide to states is a curse, not a blessing, and their history shows that what they really cut is not “fraud, waste and abuse,” but the resources low-income families rely on to stay healthy and make ends meet.

Under the current structure of programs like SNAP and Medicaid, the federal government (in the case of SNAP) or the feds along with states (in the case of Medicaid) combine to provide whatever funding is necessary to cover everyone who meets certain eligibility criteria and receives food assistance and/or health-care services.

As a result, SNAP and Medicaid funding increase when more people need the benefits they provide, or if, due to unforeseen circumstances, food or health-care costs come in higher than anticipated. The programs then contract when need dissipates. During the Great Recession, for example, when unemployment shot up, SNAP caseloads responded quickly by rising sharply. 

This temporary expansion provided critical nutritional support to struggling families—and also helped the economy. (Since low-income people spend their money quickly—97 percent of SNAP benefits are redeemed within one month of receipt—economists agree that increased SNAP benefits are one of the most effective forms of economic stimulus.) As the economy has improved, SNAP caseloads have fallen. The way SNAP and Medicaid respond to economic downturns and recoveries thus makes them ideal “automatic stabilizers” for the federal budget.

In contrast, consider exhibit A in the damage that block granting can do to an anti-poverty program: TANF, or Temporary Assistance for Needy Families, which was turned into a block grant back in 1996. While SNAP caseloads rose by almost 50 percent during the last recession, TANF caseloads rose by barely a quarter of that amount (see figure below).

While Republicans could argue that a per capita cap would be better than a typical block grant at responding to recession, the end of the program’s countercyclical function is but one part of TANF’s cautionary tale. Its block-grant structure, which a per capita cap imitates in every other meaningful way, has also severely reduced its role as a safety net for the poorest families during normal economic times. Twenty years ago, in the pre-block-grant days, the program was called Aid to Families with Dependent Children, or AFDC, and it provided cash assistance to 68 out of every 100 families living in poverty. By 2015, that ratio had dropped to 23 out of every 100 families. In 14 states, ten or fewer of every 100 poor families receive income support from TANF, as the graph below illustrates.

This decline in the number of people TANF helps happened for two primary reasons. First, remember that “flexibility” selling point from above? Because of the loose federal rules governing what the TANF block grant can be used for, states have had little incentive to spend money on the cash benefits, worker training, and child care services the program is supposed to provide. Instead, as our colleague Liz Schott has described, they’ve “diverted funds to fill budget holes, fund services for families above the poverty level (sometimes far above), bolster child welfare systems, and support early education and higher education, among other things.” Those are fine causes, of course, but a dollar spent there cannot be spent again for its original purpose. Instead of leaving the disadvantaged worse off, states should stop cutting taxes and raise enough revenue to fund their other priorities, too.

The second reason for the decline in TANF recipients is that, because its funding level was set in 1996 and has not been raised since, the TANF block grant is worth much less today than it was 20 years ago. Inflation has eroded over a third of its value. Most block grants have followed a similar trajectory: adjusting for inflation and population growth, overall funding for the 13 major housing, health, and human services block grants (including TANF) has fallen a combined 37 percent since 2000.

That decline (pictured above) is inherent to the block grant structure—and also related to the states’ aforementioned diversion of the funds to other purposes. Once funds are diverted away from their original purpose, it becomes hard for national policymakers to track their use. At that point, the block granted funds can be directed to other things national legislators want to do, like tax cuts or infrastructure. Those looking to slash government services win; people unlucky enough to be poor lose, and lose big.

Here’s something you don’t hear enough: SNAP and Medicaid are effective, efficient programs that provide critical supports to low-income families. They also quickly and automatically ramp up in recessions and down in recoveries. That doesn’t mean they’re perfect, but it does mean that Republican proposals to “fix” them would make them significantly worse.

We must do all we can to call out and block those proposals.

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.

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