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Paul Ryan's block grant scheme is doomed — for one simple reason

Governors don't really want flexibility — they have plenty. They want money. Ryan's scheme is another gimmick.

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The new speaker of the House, Paul Ryan, is unusual in that he comes to the office with an agenda. In his sweep of the Sunday talk shows, he promised that his Republicans would be a "proposition party." His agenda is mostly budget cutting and tax cutting, in familiar forms, but he will tell you it's an anti-poverty agenda. The central idea is that by converting need-based programs to fixed block grants, his scheme "applies the lessons of welfare reform to other federal aid programs."

As several recent articles have shown — I recommend this one by Eduardo Porter in the New York Times — the main lesson of welfare reform, as enacted in the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, has been: Don't ever do that again. Welfare reform has been a slow-rolling disaster, and the block grant is the main reason. While most of the argument at the time focused on the legislation's work requirements and time limits for receiving welfare, shifting a program based on need to one with fixed funding unrelated to need was the greatest crime. (I was a Senate staffer at the time, working hard to stop and/or improve the legislation.) The block grant, originally about $16 billion a year, is still $16 billion 19 years later, the same as it was during the deepest recesses of the recession. One simple statistic shows the extent to which welfare is no longer a meaningful part of the social safety net: At the time the bill passed, 68 of every 100 poor families with children received AFDC benefits. In 2013, only 26 of every 100 poor families with children received benefits under what is now called TANF (Temporary Assistance for Needy Families).

"Applying the lessons of welfare reform" by converting Medicaid, food stamps, nutrition assistance and other programs into block grants, or "opportunity grants," as Ryan prefers to call them, would be a terrible policy mistake. But it's also a political nonstarter, and not just because there's currently a Democratic president who would veto that scheme. It's because there are governors, most of them Republican, whose budgets would be devastated by a block grant, and they have the clout to prevent it.

On Medicaid and the State Children's Health Insurance Program alone, under Ryan's block grant plan, "spending in 2025 would be $161 billion — or nearly 34 percent — less than what states would receive under current law," according the Center on Budget and Policy Priorities.  Let's scroll back to welfare reform to put that number in perspective: States get $16 billion total for TANF, which is too little and hasn't changed in nearly two decades. The health portion of Ryan's block grant alone would mean a haircut to states totaling 10 times the annual value of the TANF block grant. While many Republican governors have continued to resist federal funding for Medicaid expansion under the Affordable Care Act, it's quite another thing for a governor such as Bruce Rauner of Illinois, locked in a zero-sum budget battle with his legislature, to let 34 percent of the state's federal Medicaid payment fly away. (Medicaid is the second largest expenditure, after K-12 education, in almost every state.) Ryan obviously doesn't need these governors' approval to push his plan through Congress, but there are still a few reliable rules in politics, and one of them is that members of Congress are hesitant to screw over their state's governor of the same party.

But if that's a general rule, shouldn't welfare reform have encountered the same resistance? The reason it didn't is that it actually gave states more money in the first few years than if the law had remained unchanged. Almost all of the budget savings in the welfare reform bill came from cutting benefits under other federal programs for legal immigrants who were not yet citizens. (Most of those changes were reversed a few years later.)

To remind you how these programs work: Before 1996, welfare worked exactly the way Medicaid does now — states ran the program and set some of the rules about eligibility and benefits, and the federal government paid them a share of what they spent, a share that varies by state from 50 to 70 percent. When need increased, the state spent more and got more. The TANF block grant that replaced AFDC in 1996 was fixed at the amount a state received under the matching system in 1992. But welfare caseloads had already fallen significantly, so the block grant essentially gave states money for families who were already off welfare. The Congressional Budget Office concluded that under the old law, "the federal government would have spent an estimated $15.9 billion on AFDC benefits, AFDC administration, AFDC emergency assistance, and the JOBS program in 1997 — $0.7 billion less than under title I" of the reform. Not until 2002, when most of the governors would be out of office, did the numbers turn around. And that was based on an estimate that 5 million families would be on TANF. Governors already had figured out some tricks to reduce welfare caseloads (some families belonged on federal disability programs, for example) and could do more. In fact, by 2000, the number of TANF families had dropped to just 2 million. The block grant was free money for all the rest. The lesson of welfare reform is that states will accept a block grant if you give them a lot more money than they would have received otherwise. (To be clear, this is all ancient history, and the block grant has proved woefully inadequate over the decade and a half and two recessions that have followed.)

Ryan and his allies will tell you that what governors really want is flexibility to design their own programs, and that when freed to set their own rules, they will accept less money. But that's nonsense. Governors have no magic ability to make people healthier or make hospitals and doctors accept lower payments. And if they do have an idea, they can apply for a federal waiver, which will usually be approved, to run their program a little differently. But in general, the best point at which to push down health care costs is at the highest level — individual patients have very little leverage, insurers have more, states have more, but the federal government has the most, if it's willing to use it. States can of course reduce Medicaid spending by kicking people off the program, by narrowing eligibility, but those patients will still show up at the emergency room, shifting costs to hospitals or the state's uncompensated care fund. Even governors who don't care about the poor and the sick will face resistance.

Ryan's block grant "proposition" is not just terrible policy, though it's important to show that it is. It's another phony gesture, like the balanced-budget amendment to the Constitution — a plausible-sounding scheme that is perpetually on the table because it will never happen, an excuse for not proposing or standing behind the real choices about whose benefits should be cut and whose expanded.

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