Trump administration to allow Medicaid block grants

States will have the ability to scale back Medicaid spending by converting part of their Medicaid funding into a block grant under a new Trump administration program announced Thursday.

A letter to state Medicaid directors outlines how states can undertake the drastic, controversial change that conservatives have eyed for years. 

The move is likely to kick off a furious legal fight. Democrats have been arguing the administration doesn’t have the authority to approve such drastic changes, and Medicaid advocates argue the changes would hurt low-income people and invite states to cut costs and reduce coverage. 

The program — branded as the “Healthy Adult Opportunity” — will allow states to ask permission to end their traditional, open-ended Medicaid program and put hard caps on how much money states and the federal government will spend on the poor and disabled. 

Centers for Medicare and Medicaid Services Administrator Seema Verma has made state flexibility a priority during her tenure running the agency. During a call with reporters, she said states have been asking for the ability to be more innovative.

“It’s a bit of a D.C.-centric idea that only D.C. will do the right thing,” she said.

The block grant will apply to the ObamaCare Medicaid expansion population’s “able-bodied” people. Advocates argue this gives an incentive for GOP governors in expansion states to roll back benefits and spending. 

Anyone who is covered by traditional state Medicaid programs, disabled or eligible for long-term care is excluded. Other low-income adults, children, pregnant women, elderly adults, and people with disabilities will also be excluded. 

Medicaid is an open-ended entitlement, meaning the federal government matches a certain percentage of state spending, and the funding changes depending on how many people need coverage.

The new block grant program lets states trade that away for more flexibility in how they run their program. States will get a fixed amount of money, regardless of outside circumstances. 

States will have the ability to spend it however they see fit, without some federal guidelines.

For example, the program will allow states to impose work requirements, cut provider payments, and require cost sharing and premiums without additional permission from the federal government.

Notably, states will be able to adopt what is called a “closed formulary” for certain drugs. This means a state can decide not to cover a Food and Drug Administration-approved drug if there is a cheaper alternative.

Congress already rejected block grants when the GOP’s ObamaCare repeal bill failed in 2017. Allowing states to impose those same changes by statutory waiver would be extremely controversial and have widespread implications about the use of executive power.

During the conference call with reporters, Verma stressed that the program will be optional. When asked about the possibility of legal challenges, she said states won’t be allowed to limit health benefits.

“We feel we’re on very very strong legal standing,” Verma said, while admonishing those who are “willing to weaponize the legal system to thwart state innovation at every turn.” 

Allowing block grants represents the boldest step the Trump administration has taken to redefine the nation’s largest public insurance program. 

Block grants are popular with Republicans who want to constrain Medicaid spending, but are fiercely opposed by Democrats, who argue the changes require harmful cuts in the program.

“Even after people across the country spoke out and pressed Congress to reject President Trump’s plan to gut Medicaid with his Trumpcare bill, he’s still charging forward with harmful policies that will hurt the many families who rely on Medicaid,” Sen. Patty Murray (D-Wash.) said Thursday. 

On Wednesday, 36 House Democrats wrote a letter to Verma warning against moving ahead with the program.

“Medicaid block grants necessitate cost-cutting measures like restricting enrollment, decreasing provider reimbursement, and limiting eligibility and benefits through managed care,” the Democrats wrote. “These actions endanger the lives of the most vulnerable patients, the population Medicaid was created to protect.”

But GOP states are interested.

Lawmakers in Tennessee have already submitted a waiver request to the Trump administration to impose block grants, and Alaska and Oklahoma have also expressed interest. 

Verma said the agency is reviewing Tennessee’s request, but since the state did not expand Medicaid, it would not be eligible for the program. 

–This report was updated at 11:12 a.m.