Medicaid:

Restructuring Approaches Leave Many Questions

HEHS-95-103: Published: Apr 4, 1995. Publicly Released: Apr 4, 1995.

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Pursuant to a congressional request, GAO provided information on various proposals for restructuring the Medicaid Program, focusing on the: (1) different restructuring approaches and their implications for federal-state financing and program administration; and (2) need to establish a reserve fund to offset state tax losses and increased enrollments.

GAO found that: (1) using block grants to fund state Medicaid programs would increase states' control over federal expenditures and administrative flexibility, which could result in increased operational efficiency and effectiveness; (2) states may increase the risk of not being able to control Medicaid program spending if they reduce their Medicaid contributions; (3) block grant and cap proposals have not addressed how much administrative flexibility states would receive; (4) federalizing the Medicaid program would reduce program inequities and administrative costs, but the federal government would face difficulties in meeting localities' individual needs and operating conditions; (5) the impact of splitting Medicaid into long-term and acute-primary care programs would depend on how the split is made and how responsibilities are distributed between federal and state governments; (6) there has been little quantitative analysis on the potential effects of restructuring Medicaid on financing and administrative functions; and (7) states' Medicaid spending is sensitive to economic conditions and a reserve fund could be one way to assist states during economic downturns if strict limits are placed on federal contributions.

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