Dr. Ora Botwinick examines Dahlia Arbella, 5, at the Multnomah County's North Portland Health Center on June 18, 2012, in Portland, Ore. (AP Photo/Rick Bowmer)

Republican lawmakers on Thursday introduced a plan to fundamentally change how the government provides health care to poor Americans, one that would end guaranteed coverage for the needy.

Instead of the federal government paying to cover anyone who qualifies for help through Medicaid, Republicans would convert the program into a series of fixed annual payments to state officials, who would then use the money as best they could to take care of the needy.

For decades, Republicans have argued that this system of "block grants" would give policymakers in Washington more control over the cost of Medicaid, while giving state officials greater flexibility to design plans specifically for the needs of their residents. The system would be administered with more efficiency and accountability, Republicans contend.

Now they have a chance to make the plan happen. The plan, recommended Thursday by a House committee as part of the GOP bill to replace Obamacare, could win over conservative lawmakers whose votes will be needed to move the bill forward.

Block grants would reduce costs, but the Trump administration would be hard-pressed to implement them while fulfilling the new president's promise to protect health coverage for those in need. "I want to take care of everybody. I'm not gonna leave the lower 20 percent that can't afford insurance," the president told The Washington Post in January.

Past analyses of proposals to convert Medicaid to a block grant have found that they could result in millions more poor Americans being uninsured. A block grant would force state officials to choose which patients, which treatments and which medications to cover, given the limited funds available from the federal government.

Widening the cracks

In theory, block grants could be generous enough that the state officials receiving them would not have to deny coverage to any needy residents.

"Each state is allocated a fixed amount of money," said Ben Ippolito, an economist at the conservative American Enterprise Institute. "There’s nothing that says that block grant has to be small. It could be huge."

Yet in practice, block grants typically come with big cuts.

Analysis of the proposal Republicans in Congress adopted Thursday is not yet available, but previous GOP proposals for Medicaid have envisioned extreme reductions in spending over time. Likewise, the implementation of block grants in the past has made other programs gradually but markedly less generous, limiting the federal resources available for heating assistance, housing in Native American communities, mental health, child care and more.

Republican lawmakers led by Rep. Tom Price (R-Ga.), Trump's nominee for secretary of Health and Human Services, proposed a block grant in 2015 that would have cut $913 billion from Medicaid over a decade. That figure is in addition to repealing Medicaid's expansion under Obama's reform.

All told, Medicaid expenditures in that GOP budget would be 29 percent below the Congressional Budget Office's projections for the program in its current form over the same period.

Lawmakers can use block grants to achieve such cuts indirectly by basing the size of the grant on inflation or population. The cost of health care is increasing more rapidly than inflation, and as Americans get older, the cost of treating them is growing more quickly than their numbers.

"The formulas in every bill we’ve ever seen are set such that the amount of the block grant rises more slowly than the combination of increases in costs in the health-care system and the aging of the population," said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities. "The result is that there are bigger savings year by year."

Slush funds

Budgeted reductions are only one kind of financial burden that block grants place on social programs. State officials have often found ways of diverting the money they receive in block grants from the federal government for other purposes, despite efforts by federal policymakers to ensure that the money is used as intended.

For instance, President Clinton worked with Republicans in Congress to convert the country's welfare system into a block grant in 1996. Over time, states have found other ways of using the money that previously went to poor families.

Research by Greenstein's organization shows that states spend only about two-thirds of the block grants created by Clinton's reform on the essential tasks of public assistance: payments to families, child care expenses, helping the poor find work, and administrative costs.

Some of the rest of the money is used for foster care, juvenile justice, pregnancy prevention and abstinence education. Often, states have effectively transferred the money from the block grant to support their overall budgets, making it impossible to say exactly what the funds are used for.

Federal law requires states to spend a certain amount of their own money on the poor. The rule is intended to prevent states from using the federal block grant to free up their own resources that are committed to alleviating poverty, instead dedicating that state money to unrelated purposes and reducing overall spending on behalf of the needy.

States have found ways around this requirement, however. One striking example is that states can count donations by third-party charities outside of government, such as food banks, as their own spending -- even if the charities would have made the donations anyway.

In Georgia, for instance, donations by external charities account for 60 percent of the state's required spending on the poor, according to a report from the Government Accountability Office. That is money the state itself does not have to spend to alleviate poverty.

In its response to that report, the Obama administration argued that local officials were falsely claiming credit the meals provided by food banks in Georgia and similar states to avoid their obligations to help the poor. GOP legislators have also objected to the practice, seeing it as an excuse for states to manage federal money irresponsibly.

"A classic thing in block grants is to say, 'We’re making sure the money is only used for low-income people,' " Greenstein said. "The history shows pretty clearly that those are virtually impossible to fully enforce."

These reasons, together with the fact that the welfare block grant has not been adjusted for inflation over the years, explain why far fewer poor households are receiving welfare payments today, and those that do get less. As of 2013, the typical family's check had declined in value by about 30 percent since the reforms, and the share of poor families receiving payments had declined by about 70 percent, according to the Congressional Budget Office.


Finally, because spending through block grants is difficult to monitor and control, they begin to look like slush funds to policymakers in Washington, and frustrated legislators start thinking about cutting the programs even further.

As an example, Greenstein cited the Social Services Block Grant, a small grant established in 1981 that states use to pay for a variety of programs including foster care and support for the elderly.

Rep. Kevin Brady (R-Tex.) recently introduced legislation to terminate it. "This program has no accountability," Brady said.

"When you convert a program to a block grant, and 50 states do 50 things with it, and the money gets dissipated all across state budgets, it's much more difficult to identify the specific uses of the money," Greenstein said. "Now Republicans -- in the House at least -- are proposing to end the Social Services Block Grant."

'Magical savings'

To some degree, states may be able to absorb some of the reductions that come with block grants by managing programs more efficiently. Kellyanne Conway, counselor to the president, made this argument in an interview on "Today" that aired in January.

"Those who are closest to the people in need will be administering it," she said. "You cut out the fraud, waste and abuse, and you get the help directly to them."

Proponents respond that at least compared to private insurers, Medicaid is already a relatively efficient program, and that there may be little fat to trim.

Researchers have consistently found that Medicaid spends less than private insurance companies on patients with similar needs. For instance, one study concluded that a private company would pay 25 percent more to cover a typical beneficiary than Medicaid.

Between 1990 and 2013, Medicaid's spending per person has increased roughly in line with the pace of economic growth, according to the Congressional Budget Office. By contrast, spending by private insurers and Medicare, the federal program for the elderly, has exceeded economic growth by more than 1 percentage point annually.

A block grant proposed by House Speaker Paul D. Ryan (R-Wis.) in 2012 would have resulted in 14 million Medicaid beneficiaries losing coverage after a decade -- even under the optimistic assumption that states could find ways of controlling spending, according to an analysis conducted by the nonpartisan Kaiser Family Foundation at the time.

"I just don’t understand where they think this magical savings is going to come from," said Jonathan Gruber, an economist at the Massachusetts Institute of Technology and a former adviser to Obama. "You are going to fundamentally put at risk the health of the low-income population."