What we're talking about
Currently, Medicaid costs are shared between the federal and state governments, and federal funding reflects the true needs of each state. Per capita caps or block grants would restrict federal dollars to a predetermined amount, regardless of states’ actual Medicaid expenditures.
A per capita cap would allocate a fixed amount of federal dollars per enrollee based on the states’ current or historical expenditures. The cap would grow at a constant annual rate below the rate of expected per capita health care spending (Holahan and Buettgens, 2016).
A block grant, also called an overall cap, would similarly provide an allotment of federal funding set to grow at a predetermined rate. In this case, states would be given a lump sum based on aggregate historical spending, rather than on actual current enrollment (Holahan and Buettgens, 2016).
MYTH: Per capita caps and block grants control costs and adequately protect vulnerable populations.
FACT: Massive funding shortfalls would force states to make cuts that would impact low-income, disabled, elderly, and child beneficiaries.
Implementing per capita caps or block grants would force cuts to Medicaid that would profoundly reshape the scope of the program and the benefits it provides. According to estimates from the Congressional Budget Office, a per capita cap would reduce federal funding by up to $893 billion, and a block grant would cut spending by up to $742 billion, within nine years (Lukens and Zhang, 2025). Faced with these massive cuts, states would likely be forced to cut costs through reducing eligibility and benefits, limiting access to care, increasing cost-sharing, and reducing provider payments (Weeks, 2017).
Vulnerable groups that rely on Medicaid would be deeply impacted. Because a substantial portion of Medicaid spending goes towards elderly and disabled individuals, states with large or growing populations of these groups would be under even more pressure. In Minnesota, the population of older adults is expected to make up 1 in 5 people by 2038 (Minnesota Compass, 2022). To reduce spending, states may try to increase enrollment of healthy, young individuals and make services less viable for elderly and disabled populations, as well as those with chronic conditions such as mental health and substance use disorders (Layton et al., 2017). Children, who make up the largest group covered by Medicaid, would also be at risk. A block grant could reduce federal funding specifically for children by up to $163 billion by 2029. Under a per capita approach, federal funding for children could be reduced by $143 billion by 2029 (Avalere Health, 2019).
MYTH: Per capita caps and block grants empower states and allow for much-needed flexibility.
FACT: These reforms would create a “one-sided arrangement where states can only lose” and force states to shoulder increased financial risk.
Per capita caps and block grants are designed to make Medicaid spending more predictable for the federal government and less predictable for states, creating a “one-sided arrangement where states can only lose” (Lukens and Zhang, 2025). Under this system, states take on more financial risk and have diminished ability to respond to changing health needs. Medicaid costs and utilization fluctuate greatly due to factors out of states’ control, like demographic changes, public health emergencies, natural disasters, economic downturns, and new developments in medicine or treatments (Park, 2021).
Some argue that states could lose flexibility under a per capita cap or block grant. Because funding allocations would be based on historical spending, state policies and other factors that determine Medicaid spending would become locked in as federal law, making it difficult for states that want to expand coverage or increase enrollment (Holahan and Buettgens, 2016).
MYTH: Per capita caps and block grants are a simple solution to out-of-control Medicaid spending.
FACT: Medicaid is already effective at controlling costs and has been shown to be a cost-saving program by increasing tax revenue and offsetting expenditures in other areas.
When health status is controlled for, Medicaid spending has consistently been shown to fall well below private spending (Holahan and Buettgens, 2016). Medicaid enrollees produce lower health care costs compared to those with similar health care utilization under private plans, while also benefiting from wider coverage and lower out-of-pocket costs (Lukens and Zhang, 2025). Medicaid spending growth has also been relatively low – spending per person grew by 2.4% per year from 2014 to 2023, compared to 4.4% and 3.3% for private insurance and Medicare, respectively (Lukens and Zhang, 2025).
Proponents of sweeping cost-cutting policies ignore the progress states have already made in lowering Medicaid spending. Minnesota has long been implementing cost-saving reforms and program efficiencies, producing savings for both the state and federal governments. A per capita cap or block grant would penalize Minnesota by restricting federal funding allocations based on spending levels that had been successfully lowered through innovative reforms (Weeks, 2017).
Overall, per capita caps and block grants would destabilize state health systems.
Proposed efforts to alter Medicaid’s financing structure are misguided in both the issue they seek to address and the solution they want to produce. Implementing per capita caps or block grants will inevitably result in deep cuts to state programs that compound over time, leading to increased financial risk and reduced autonomy for states, and cuts in healthcare coverage and benefits that over one million Minnesotans rely on.
References
Avalere. (2019). Medicaid block grants and per capita caps: Projected impact on children. https://avalere.com/wp-content/uploads/2019/07/20190717_CHA-Medicaid-Capped-Funding_Final.pdf
Chmielewski, M. (2022). 7 things to know about Minnesota's older adults. Minnesota Compass. https://www.mncompass.org/data-insights/articles/7-things-know-about-minnesotas-older-adults
Holahan, J., & Buettgens, M. (2016). Block grants and per capita caps: The problem of funding disparities among states. Urban Institute. https://www.urban.org/sites/default/files/publication/83921/2000912-Block-Grants-and-Per-Capita-Caps-the-Problem-of-Funding-Disparities-among-States.pdf
Layton, T. J., Montz, E., & McGuire, T. G. (2017, June 26). The downstream consequences of per capita spending caps in Medicaid. Health Affairs Forefront. https://doi.org/10.1377/forefront.20170626.060813
Lukens, G., & Zhang, E. (2025). Medicaid per capita cap would harm millions of people by forcing deep cuts and shifting costs to states. Center on Budget and Policy Priorities. https://www.cbpp.org/sites/default/files/1-7-25health.pdf
Park, E. (2021). How states would fare under Medicaid block grants or per capita caps: Lessons from Puerto Rico. The Commonwealth Fund. https://www.commonwealthfund.org/sites/default/files/2021-01/Park_Medicaid_block_grants_per_capita_caps_lessons_Puerto_Rico_ib.pdf
Weeks, S. (2017). Block grants or per capita caps and Minnesota’s Medicaid program. Minnesota Department of Human Services. https://mn.gov/dhs/assets/block-grants-or-per-capita-caps_tcm1053-275143.pdf