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How Republican budgets hide huge spending cuts in “block grants"

The Senate GOP's new budget will be thick with block grants. So what are block grants?
The Senate GOP's new budget will be thick with block grants. So what are block grants?
Mark Wilson/Getty Images

At the Wall Street Journal, Kristina Peterson reports that the Senate GOP's upcoming budget will call for "block granting" Medicaid and food stamps. It's a really helpful article, but it includes a paragraph that's frustratingly common in press coverage of the GOP's various block grant proposals:

To get a sense of potential savings, under last year’s House GOP budget, converting the food-stamp programs into a block grant starting in 2019 would have saved $125 billion over 10 years. The document also estimated that overhauling Medicaid would trim $732 billion over a decade.

Republicans often use block grants to hide massive spending cuts, and you can see why in the language Peterson uses. If Republicans simply proposed cutting Medicaid by hundreds of billions of dollars, then the cuts would be described as, well, cuts, possibly with the word "draconian" in front of them. But tucking them behind block grants leads to gentler "saved."

The reality is block grants don't save money. But they're routinely used to hide the thing that does save money, which is fixed funding formulas that require huge spending cuts. That's how the Republican budget actually saves money in Medicaid and food stamps.

How block grants actually work

A block grant takes money the federal government is already spending on a program and gives it to the states to administer — usually with fewer rules and conditions. That's it. The hope is that states will use the money more efficiently. But block grants can cost more, cost the same, or cost less than the funding mechanisms they replace. Block grants change how money is spent, not necessarily how much money is spent.

Take the House GOP budget Peterson mentions. Yes, it block granted Medicaid. But the reason Medicaid spending fell by more than $700 billion was a change to Medicaid's funding formula.

Currently, the way Medicaid works is it ties federal funding to the actual costs of Medicaid in a given state. So if there's a recession and the number of people eligible for Medicaid swells, then the federal government's contributions to Medicaid rise automatically. Similarly, if a state's health costs rise unusually fast, so too does the federal contribution.

The House GOP's 2015 budget changed that. As the Center on Budget and Policy Priorities explains, federal spending on Medicaid "would rise annually with inflation and population growth." CBPP estimates that the new formula would mean the annual increase on federal spending on Medicaid "would average about 3.5 percentage points less per year than what CBO expects to be the Medicaid program’s average growth rate over the coming decade."

Another way of putting this is that the House GOP's 2015 budget doesn't cut Medicaid spending by moving to block grants. It cuts Medicaid spending by cutting Medicaid spending. It could make the same cut absent a block grant: Republicans could mandate that federal contributions to Medicaid rise with inflation and population growth, and if there's a gap between that number and a state's needs, it's on the state to figure it out.

Block grants may be good policy, or they may be bad policy. But Republicans tend to use them as a justification for an unrelated policy: massive spending cuts. There's nothing magic about block grants that makes Medicaid cost $700 billion less; it just sounds better to say you're going to save money by block-granting Medicaid and food stamps then by cutting hundreds of billions of dollars from Medicaid and food stamps. But reporters shouldn't conflate block grants and spending cuts.

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