In the annals of ludicrous political posturing, Sens. Ron Wyden (D-Ore.) and Frank Pallone’s (D-N.J.) sudden concern about the program integrity of the $597 billion Medicaid program and how those billions of dollars are spent has to rank among the most hypocritical. 

On Tuesday, January 14, 2020, Wyden and Pallone sent a letter to the Department of Health and Human Service’s Office of Inspector General urging the watchdog to “exercise vigorous oversight” over program spending should the Centers for Medicare and Medicaid Service (CMS) Administrator Seema Verma grant the state of Tennessee’s request for a block grant of its Medicaid dollars.

According to The Hill newspaper:

“Under Tennessee’s proposal, the state would receive a nearly $7.9 billion block grant from the federal government. The state would be responsible for any costs above that amount, but if it spends less, the state would keep half of all the unspent money.  Wyden and Pallone said the system would create a financial incentive for Tennessee to cut coverage benefits for consumers.”

Tennessee Gov. Bill Lee (R) describes his draft plan as a hybrid, a modified block grant.  His vision would entail a fixed payment to the state of Tennessee, with annual adjustments for inflation.  Tennessee has routinely underspent its Medicaid allocation by billions, according to Lee, but by law the state is not allowed to retain those savings.  Under his new proposal, in years in which Medicaid enrollment grows, the states would seek additional federal monies, but in years in which enrollment dropped, the state would split the savings equally with the federal government.  Furthermore, Lee proposes to maintain current eligibility and coverage parameters. 

Lee says “This is an approach that rewards Tennessee for a well-run program, providing high-quality care to members with high member satisfaction and underspending CMS projections. This allows us to get access to some of those federal savings. Medicaid expansion requires a significant amount of money that the state has to come up with on an ongoing basis.”    

If granted, Tennessee’s Medicaid block grant, which would serve 1.4 million residents, would be the first of its kind in the nation.  A number of other states, including Alaska, Utah, and Oklahoma are poised to follow suit should Tennessee obtain the waiver from CMS.

Many states have been asking CMS to grant them their Medicaid dollars in a block grants for years, convinced that if states were given more flexibility in how their Medicaid dollars are deployed, state officials could both guarantee better health outcomes for their Medicaid recipients, as well as stop the rapidly expanding Medicaid program from eating their entire state budgets.   

Some in the press have dubbed block granting Medicaid a “radical” approach and it seems that the entire social welfare industrial complex opposes the administration’s initiative to give the states an opportunity to control Medicaid costs, but the concept of block granting federal money to the states in far from radical. 

Not only is it common, it’s been a feature of federal spending since 1966.  Block grants are a form of grant-in-aid provided to the states for a broad array of purposes, including community development, social services, public health, and law enforcement.  Block grants tend to give the states more flexibility and have fewer administrative strings attached.  There are, as of 2020, 21 federally-funded block grant programs in existence, at a cost $56.7 billion in total, only 27.5 percent of the federal grant-in-aid budgets, according to the Congressional Research Service.

In fact, the Medicaid program has been a source of billions in wasteful spending, rampant improper payments, and outright fraud for decades. 

The Government Accountability Office (GAO) has had Medicaid on its High-Risk List since 1990 because it loses ten of billions annually to wasteful improper payments.  In fiscal year 2018, Medicaid losses were $36.2 billion. 

In its High-Risk series, GAO has exposed chronic managerial and structural weaknesses at CMS that allows Medicaid’s vulnerabilities to persist unabated.  The GAO’s recommendations to tighten program integrity have gone unimplemented year after year and the federal government’s approach to stemming this plunder has been anemic at best and incompetent at worst.   

Sens. Wyden and Pallone’s putative concern about Medicaid’s program integrity under a block grant is nothing more than a transparent attempt to stymie Tennessee’s attempt to bring efficiency and real oversight to an out-of-control entitlement program.  With properly constructed block grants, the states will have the clear incentive to do a lot better.  They should be allowed to try.