WASHINGTON — The Trump administration said Thursday that it would start allowing states to seek fixed amounts of money for most poor working-age adults who receive Medicaid coverage, a major shift that would limit federal contributions to a portion of a program that has always been an open-ended entitlement.
Seema Verma, the administrator of the Centers for Medicare and Medicaid Services, said that states that sought the arrangement — an approach often referred to as block grants — would have broad flexibility to design coverage for the affected group under Medicaid, the state-federal health insurance program for the poor that was created more than 50 years ago as part of President Lyndon B. Johnson’s Great Society.
The announcement by Ms. Verma, who often speaks of wanting to “transform” Medicaid, comes as her efforts to allow states to require poor adults in Medicaid to work or train for a job in order to receive benefits is mired in court battles.
“Data shows that barely half of adults on the Medicaid program report getting the care they need,” Ms. Verma said in a morning news release. “This opportunity is designed to promote the program’s objectives while furthering its sustainability for current and future beneficiaries, and achieving better health outcomes by increasing the accountability for delivering results.”
But Democrats, health care providers and consumer groups warned that capping federal funding for adult beneficiaries and giving states more freedom to decide who and what Medicaid covers would jeopardize medical access and care for some of the poorest Americans. A legal challenge is almost certain.
“A transition to block grants could transform Medicaid from a safety net program, designed to meet basic health needs for low-income Americans, to a program with funding limits that drive care rationing for the most vulnerable,” said Dr. Howard A. Burris III, president of the American Society for Clinical Oncology.
Although the option will technically be available to all states, it appears to be targeted to the 14 states that have not yet expanded Medicaid, as a more conservative way to move forward in covering poor adults.
Medicaid has always provided unlimited federal matching payments to states based on whatever they want to spend. Some of what the program covers is mandatory — emergency and hospital care, for example — but states can also choose to provide optional benefits, such as dental care or prescription drugs. No matter how much a state’s enrollment or spending rises, the federal share of funding rises with it.
But under the waiver program Ms. Verma is proposing, a state could decide upfront how much it wants to spend on its adult Medicaid population, then get the federal share in either a predetermined lump sum or a fixed amount for each beneficiary. Critics said this could backfire if more people became eligible for Medicaid because of a recession or natural disaster, for example, or if costs went up because a lot of enrollees needed an expensive new medicine.
The plan — called “the Healthy Adult Opportunity” — comes after Ms. Verma and other Trump administration officials spent months trying to figure out how they could legally approve an alternative to the open-ended federal funding that the Medicaid statute requires. The population affected by the new approach includes adult beneficiaries younger than 65 who aren’t eligible on the basis of a disability or their need for long-term care, and for whom Medicaid coverage is optional for states. Pregnant women are not included in the group.
The plan would allow states to cover fewer drugs for enrollees in the demonstration program, while still requiring a minimum set of benefits.
Republicans have proposed block grants in various forms for decades, going back to the Reagan administration. One such effort provoked a political uproar in 1995, when Congress passed legislation to give each state a fixed amount of federal money for Medicaid, only to see President Bill Clinton veto it.
More recently, Republicans’ bills to repeal and replace the Affordable Care Act in 2017 proposed giving states a choice between a fixed annual sum per Medicaid recipient or a block grant, both of which would have almost certainly led to major cuts in coverage over time. Concerns from moderate House Republicans about the potential of deep cuts to Medicaid — which now serves more than 71 million people, or more than 1 in 5 Americans — helped doom the repeal effort.
Conservatives say Medicaid spending, which consumes a major and growing portion of the federal and states’ budgets — it cost about $620 billion in 2018, and accounted for 9.5 percent of the federal budget — needs to be reined in. The current system of unlimited federal matching funds, they say, has encouraged states to milk as much as they can, sometimes wastefully. Capping funding, their argument goes, would make Medicaid more efficient and ensure it can continue to help the sickest and most vulnerable Americans.
Although the federal government generally pays between 50 and 77 percent of a state’s total Medicaid costs, depending on the state’s wealth, it covers much more — 90 percent of the costs — for the adults who became eligible for Medicaid under the Affordable Care Act. While most adults who qualified for Medicaid in the past were disabled, pregnant or extremely poor parents of small children, the newly eligible group — more than 12 million people in 35 states, according to federal data — includes adults who may be healthy and childless and have somewhat higher incomes.
Ms. Verma has often suggested that adding healthy working-age adults to the program has threatened its viability for more fragile populations, like children, the elderly and the disabled. She did so again on Thursday, saying in a call with reporters that Medicaid “was not originally designed for this group” and that many states had been “far too lax” in verifying whether people are even eligible for the program.
But the popularity of Medicaid — the threat posed to it by Republican efforts to repeal the Affordable Care Act in 2017 helped Democrats retake the House in the 2018 midterm elections — raises the question of why Mr. Trump would sign off on a block grant program heading into his re-election campaign. One answer is that if it is taken up by states that have not yet expanded Medicaid at all, Mr. Trump could point to it as a new expansion of health coverage.
“Trying to get to the bottom of the politics of this is hard,” said Sara Rosenbaum, a professor of health law and policy at George Washington University. “I assume that they are trying to look like they are helping poor people, without in any way extending the entitlement. It’s one of these sleights of hand where you’re trying to figure out exactly what’s at work.”
It was not immediately clear how Ms. Verma would determine the amount of federal funding a participating state would receive, and how it would compare to the amount that the 36 states that already expanded Medicaid under the health law get.
Enrollment in Medicaid peaked in 2015, around the time a number of states expanded their programs to include childless adults, and it has tapered each year since, according to the Kaiser Family Foundation. States largely attribute the enrollment drops to an improving economy, although as the administration has encouraged states to verify the incomes of Medicaid beneficiaries more often, there is evidence that the added paperwork has contributed to fewer children, in particular, receiving government coverage.
