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Medicaid block grant primer

April 20, 2011

He supposedly want to kill old folks, but does he?

Like many “schemes” our government devises for our supposed betterment, Medicaid is a convoluted jumble of State funding with additional funding from the Federal government based more on the income of a state than on anything else.  Rep. Ryan released his new plan to help cut the costs in Medicaid, which primarily entail the use of block grants, but do most of us know what that truly means?  If you are a lefty, you swallow the kool-aid and tout the party line that block grants will “kill Medicaid” even though you didn’t even bother to figure out what the hell a block grant actually does.  If you are a righty, you probably haven’t bothered because we honestly don’t care that much about Medicaid to begin with (ok, maybe I am projecting a bit) so why should we bother to investigate.  Not to worry friends, I did the studying, thanks to my Cliff Notes on Government Ponzi schemes, you will have all the information you need to state an informed opinion of why block grants are evil (if you are a lefty) or they are the way to go (if you are a righty).  Not sure what you supposed moderates are supposed to think.

First off, what is Medicaid?  It is basically an insurance program for poor people.  It is funded by a combination of state and federal funds, but is administered by the states with requisite federal guidelines whenever big brother sends pesos down the pipe.  Eligibility varies by state, but the overarching theme is it is designed to cover low-income people and families – in essence, it does what Obama says we didn’t do for people before Obamacare.

How is it funded?  It is a mix of state and federal funds, but in some states, local taxes also provide funding.  Want to figure out for yourself what the Federal Medical Assistance Percentage is for yourself?  The formula is real easy, here you go:

“Federal medical assistance percentage” for any State shall be 100 per centum less the State percentage; and the State percentage shall be that percentage which bears the same ratio to 45 per centum as the square of the per capita income of such State bears to the square of the per capita income of the continental United States (including Alaska) and Hawaii; except that (1) the Federal medical assistance percentage shall in no case be less than 50 per centum or more than 83 per centum, (2) the Federal medical assistance percentage for Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa shall be 50 per centum.”

Everyone got that?  Good, now that you know how much your state should get…ohh, you didn’t do the math did you?  Yeah, me neither, I am not shady enough to be able to understand government math, where is Geithner?  Okay, to cheat, here is a chart of the percentages.

So what does the FMAP do?  The FMAP determines how much money goes to the state from the Feds.  For example, my state Virginia (apparently a rich state) has an FMAP of 50%, thusly, every dollar we spend on Medicaid, the Feds covers half, or put another way, for every dollar Virginia spends, the Feds spend two dollars..  If you are from Arkansas (definitely a poor state), the Feds cover 71.37 percent, or the Fed spends 3 dollars for every one dollar from Arkansas.  It is always this straightforward though, for example, for “Family Planning” services, the FMAP for every state is automatically 90%, as in the Feds pay 90% of every dollar spent on family planning, or to put another way, we keep Planned Parenthood in business, every buck a state pays, the Feds pays 10.  Other fixed rates are for the CHIP program, Indian Health services and other numerous programs.  This is very important to understand, because it directly points to the reluctance of some states to embrace the block grant program.

What does a block grant do?  A block grant sets the amount of money going to the states at a fixed dollar amount, not a percentage of money spent.  This forces states to find savings internally, instead of finding ways to game the system for more money every year.  The current system inadvertently (I hope) is punitive to any state that seeks to reduce fraud and waste.  I’ll explain how.

Imagine you are the Governor of Arkansas and decide to do what all politicians do, form a committee to enact a study to see about saving money in your Medicaid program.  The dudes come back in 2 years and tell you, “For every dollar in waste and fraud we cut from the system, we actually only have a net savings of 29 cents.  We don’t think the effort involved is worth it.”  Now some would argue its a wash, since the Feds will pay for you to actually cut the waste and fraud.  They would be correct if the FMAP for administrative expenses was the same as your standard FMAP, but it isn’t.  The administrative expenses FMAP is set at a fixed rate of 50%, which sort of makes sense, we don’t want Darryl and his 24 other brothers named Darryl all working as administrative assistants to Errol, just so the state can get 2 bucks for every dollar they spend on their salary, but it inadvertently serves as a deterrent to reform.

Under a block grant program, this disincentive does not exist.  For every buck a state saves in waste and fraud, that is a true dollar saved, which makes the value of their block grant that much greater.  The block grant does not change by how large or small a state’s Medicaid program is, thus there is incentive to make it the most efficient program out there.  And there is the added incentive to make sure that only people who actually need what Medicaid offers are admitted to the rolls of the program, contrast with Obamacare which is seeking to add millions of citizens to the program.

Are block grants the answer?  I can’t tell you that, you should make that determination off what you have read, but I can say they are a much better system than what we have now.  The governors whining about the grants do so from the typical big government stance of maintaining the status quo, “We can’t keep our system the way it is with such cuts to spending.”  That’s the whole point, the current system is broken and is set-up so that spending increases every year, with no motivation to curb costs.  Block grants at least serve as a method to put states on the track of managing their own money, instead of gaming the system to get more from the Feds.

10 Comments leave one →
  1. JustFacts permalink
    April 20, 2011 3:39 pm

    Another reason that the progressives are so against “Block Grants” is that then the taxpayers would really see how little of their money is actually coming back to their state after being massaged by the Feds. Just like income taxes. If everyone had to send in their own taxes att he end of each month, there would be a violent revolt against the Federal government. Payroll deduction has shielded the IRS from the wrath of the taxpayers ever since it was instituted.

    • April 20, 2011 4:54 pm

      Very good point. =) It would definitely lay bear how much of other people’s money goes into your state, but I get the feeling that is a mark of distinction for many of our citizenry.

    • April 20, 2011 9:41 pm

      I had not thought of that, it would make a great issue ad, wouldn’t it?

  2. April 20, 2011 10:20 pm

    Which will happen first, block grants and a reduction in the role of government in state affairs or you and I will see a unicorn? Any bets Colin which will happen first?

    • April 20, 2011 10:46 pm

      I watch Red Eye, I see unicorns every night. =)

  3. LD Jackson permalink
    April 21, 2011 4:52 am

    Let’s see now, what was it Barack Obama said when he was campaigning for the White House? Something about transparency? It would appear that block grants would go a long way towards shedding the light of day on Medicaid and the amount of money it uses, as well as the fraud and waste that are rampant in the program. Wouldn’t that count as transparency?

    • April 21, 2011 9:18 am

      It would certainly help, but humans (especially bureaucrats) are amazingly crafty, we can find ways of abusing any system. The beauty of the block grant is it don’t matter, there is nothing the states can do (besides purposely lowering their state’s overall populations’ income) to increase the amount of the grant. So if a governor doesn’t want to fix the fraud now, it is very negative.

  4. April 21, 2011 5:37 am

    Great info! It would seem to me that this is a better way to go but you know what is going to happen–it has already started–the “Republicans are going to kill old people and children” if the budget passes spin will start. And in fact it already has. It is going to be tough to change the way Washington does business and I hope that they will be strong enough to fight through the spin.

    • April 21, 2011 9:20 am

      You have to wonder how people still believe those non-sensical cries from the left, they say it every time. Remember the ads that tried to say Bush was poisoning children? These people are incredible, they can never debate from an even playing field, yet they are the first to cry foul. Man they are despicable.


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