The Trump administration recently invited states to apply for the new Healthy Adult Opportunity Medicaid demonstration initiative, which lets states opt in to a block grant funding model for a portion of their Medicaid enrollees in exchange for fewer federal rules. By capping federal funding, the initiative exposes the Medicaid program to unprecedented financial risk in states that take up the initiative.

In a new analysis prepared for The Commonwealth Fund, Manatt Health draws on historical data and projections of cost and enrollment growth to estimate the new block grant model’s financial impact on the Medicaid program by state. The report compares estimated Medicaid expenditures under current law and funding available under a block grant.

Manatt’s analysis finds that states that take up the block grant option would see substantial reductions in Medicaid funding:

• The median state would face a 10.5% reduction in Medicaid funding between 2021 and 2025 compared with current national projections of Medicaid spending. The analysis also finds that cuts would increase steeply if healthcare costs or enrollment grow more rapidly than projected—due, for example, to an economic downturn or the availability of new cancer therapies.
• To stay under the spending caps, states would be required to reduce benefits for enrollees, impose higher cost sharing on them and reduce payments to the healthcare providers who serve them.
• Under all scenarios, the vast majority of resultant Medicaid savings would accrue to the federal government.

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