Political messaging campaigns sometimes feel like Hollywood blockbusters: they’re dramatic, heavily produced and end up playing at a town hall near you.

During the health reform debate, “Sarah Palin and the Deathly Panels” was a surprise hit in the summer of 2009. This year, Democrats’ version of “MediScare” opened to a limited engagement in a New York county. And by every indication, the party plans to take its winning message to a national audience.

But can a sequel of sorts — “MediScare II: Medicaid Block Grants” — be far behind?

Democrats are marshalling a national effort to warn that Medicaid is imperiled. Yet Republicans say the real concern is out-of-control health spending and states lack sufficient tools to rein in the program’s costs.

Medicaid Emerging as Concern

The GOP House budget blueprint — offered by Committee Chair Paul Ryan (R-Wis.) — has become a touchstone for its proposal to repeal last year’s health reform law and transform Medicare into a voucher program. Democrats have used the plan to stump for support; Republican presidential candidates are routinely quizzed on whether they would back Ryan’s changes.

But the plan’s brash Medicaid reforms, while starting conversation in policy circles, generally have been overlooked on the national stage. Under the proposal, the federal government would end its open-ended funding of the safety-net program. States instead would receive fixed annual block grants of $11,000 per Medicaid beneficiary to use as they see fit.

Those Medicaid changes may not be low-profile for long.

Democrats and advocates are pointing to a flurry of reports showing the state-by-state impact; one Kaiser Family Foundation study projected that California would be forced to cut health coverage for up to 8.8 million residents, and the state would take a $78 billion hit in federal funds over the next decade.

Meanwhile, Democrats convened a session with Medicaid advocates on Tuesday to plot “a concerted attack” against Republicans’ plan, setting up a new messaging campaign — and ensuring that we’ll be hearing lots more about block grants in the weeks to come.

How Block Grants Work

Federal officials first deployed block grants forty-five years ago, as part of Democrats’ Partnership for Health program. But in subsequent years, the model has been rarely used for health care funding and became associated with Republican leadership. A 2004 Urban Institute study notes three major periods when block grant use soared: Under Presidents Nixon and Reagan, and when Republicans controlled Congress in the mid-1990s.

Entitlement funding tends to be open-ended, whereas block grants are intended to give Congress more control over — and ultimately rein in — federal spending. In theory, Medicaid block grants would apportion a fixed chunk of federal funds to states, which could allow for more experimentation than the current model, where the federal government’s contribution to state programs rises or falls based on the state’s Medicaid spending.

However, the history of block grants suggests that using them means federal funding tends to drop off, in terms of real dollars, creating new shortfalls as programs age. One study found that real federal funding fell by an average of 11% across eleven block grants.

Rhode Island as Test Case for Block Grant Plan

Republicans have floated block grants as a Medicaid reform across the last five presidential administrations, and the proposal had gained traction again even before Ryan’s proposal; attendees at a National Governors Association meeting in February heavily lobbied for the shift. Their contention: The move would set up 50 new laboratories of health care innovation.

Let’s look at the one lab already at work: Rhode Island.

The state received approval from the George W. Bush administration to use a Global Consumer Choice Compact Waiver, which resembles Republicans’ block grant proposal. The State Health Access Data Assistance Center notes that Rhode Island’s Medicaid program now operates with a capped federal contribution, like a block grant, and has some increased flexibility under the waiver. However, the state still draws down funds through a federal matching program rather than as a lump-sum.

Many conservative thinkers have hailed Rhode Island’s example. Gary Alexander, who was Rhode Island’s Secretary of Health and Human Services through January 2011, contended that the program saved the state $100 million in its first 18 months. Galen Institute President Grace-Marie Turner told Inside Health Policy late last year that a move like Rhode Island’s would let states gain additional flexibility and free themselves from “federal micromanagement.”

But the state’s Medicaid spending grew at roughly the same rate, absent federal stimulus funds, as before the reforms took effect. Democrats in Rhode Island now say they can’t substantiate Alexander’s savings.

Meanwhile, writing on the Incidental Economist, Austin Carroll cautions against drawing national lessons from the Ocean State. Carroll notes that one “key difference between the Rhode Island deal and Rep. Ryan’s budget … [is that the] money promised to the state in the form of a block grant was huge, not reduced” — in theory, the state was never forced to make the trade-offs that Republicans’ proposed block grants would require.

California at Center of Potential Medicaid Changes

The House budget is unlikely to be adopted, given Democrats’ control of the Senate. But there are other efforts in play that could reshape Medicaid — and the Golden State sits at the center of one of them.

The effort revolves around empowering states to more aggressively trim provider pay. A lawsuit headed to the Supreme Court this fall focuses on California’s 2008 and 2009 cuts to Medi-Cal reimbursement, with providers and beneficiaries arguing that the payment cuts violated federal Medicaid law.

According to federal law, Medicaid rates must be “sufficient to enlist enough providers” so that beneficiaries can access care to the same extent as the general population in a particular area. The Obama administration last week filed a friend-of-the-court brief endorsing California’s decision.

Meanwhile, congressional Republicans this month introduced legislation that would allow states to change Medicaid eligibility requirements; Rep. Cathy McMorris Rodgers (R-Wash.) has said she considers Rhode Island’s experiment as a model for other lawmakers.

Democrats Prepare To Fight for Medicaid

Many legislators appear to view changing Medicaid as more viable than overhauling Medicare. The program covers constituencies like the poor and less politically active elderly, such as those who live in nursing homes. Some Democrats may be inclined to broker a deal “in an effort to look tough on deficit reduction,” The Hill notes.

Yet Medicaid advocates can summon two arguments to sway wary lawmakers: the power of polls and President Obama.

Sixty percent of U.S. residents want Medicaid to remain unchanged and just 13% prefer major cuts to the program as part of congressional efforts to address the federal deficit, according to a Kaiser Family Foundation tracking poll. And the White House is girding to take on a prominent role in the messaging battle, as the health law’s national health coverage expansions hinge on a healthy Medicaid program, the Washington Post‘s Ezra Klein notes.

Here’s a look at what else is making news around the nation.

Rolling Out Reform

• During last week’s Senate hearing on the Older Americans Act, HHS Assistant Secretary for Aging Kathy Greenlee said HHS will issue a proposed rule by October outlining changes to the Community Living Assistance Services and Supports program. The CLASS program — which is scheduled to begin in 2012 — was established under the federal health reform law to provide insurance to workers if they become unable to care for themselves because of injury or illness. Greenlee said the department is considering whether to increase the minimum earning requirement for beneficiaries, index premiums for inflation and strengthen anti-fraud protections (Adams, CQ HealthBeat, 5/26).
• Last week, the American Medical Association sent a letter to Federal Trade Commission Secretary Donald Clark calling for “significant modifications” to an antitrust policy proposal in the draft rules governing the creation of accountable care organizations under the federal health reform law. The letter stated that if the ACO requirements and antitrust clearance process are not properly developed it could have a “significant and negative impact on the ability of physicians, hospitals, and other eligible ACO entities to successfully form and participate in ACO models” (Norman, CQ HealthBeat, 5/26).
• In 2010, nearly 58% of uninsured young adults between ages 19 and 29 delayed care because of costs, compared with 34% of insured young adults in that age group, according to a study by the Commonwealth Fund. The report notes that provisions of the federal health reform law are expected to increase coverage among this age group in the coming years. For example, the Commonwealth Fund estimates that 1.6 million students enrolled in colleges and universities will have better health coverage after 2012, when a reform law provision requires college health plans to remove lifetime and annual spending limits (Bunis, CQ HealthBeat, 5/26).
• Last week, 100 health policy experts and economists sent a letter to lawmakers discouraging them from repealing the Independent Payment Advisory Board created by the federal health reform law. The letter states that IPAB is “essential to promote, monitor and implement reforms” and will encourage providers to deliver more efficient health care. Alice Rivlin — a health economist at the Brookings Institution and one of the letter’s signatories — noted that “there are a lot of unreasonable fears about the IPAB.” She added, “I view it as a much more benign device to improve the efficiency of delivery systems in a lot of different ways” (Kliff, Politico, 5/25).
• CMS recently released a fact sheet describing how its proposed accountable care organization rules include various exceptions for rural health care providers. The exceptions would allow certain critical-access hospitals to form their own ACOs; create special incentives to encourage ACO participation among federally qualified health centers and rural health clinics; exempt ACOs with fewer than 10,000 beneficiaries from the required 2% savings thresholds; and use a sliding scale to determine the minimum savings rate (McKinney, Modern Healthcare, 5/24).

On the Hill

• Last week, the House voted 234-185 to approve legislation (HR 1216), by Rep. Brett Guthrie (R-Ky.), that would shift funding for graduate medical education programs called for in the federal health reform law. The reform law allocated a direct appropriation of up to $230 million between fiscal years 2011 and 2015 for medical training services, but the legislation would eliminate that mandatory funding and authorize $46 million annually between FY 2012 and 2015. The Senate is not expected to consider the bill, and the White House has pledged to oppose legislation that would “erode the important provisions” of the reform law (Symes, CQ Today, 5/25).
• Republicans are continuing to push legislation (HR 1683) that would grant governors greater flexibility to cut Medicaid eligibility and benefits. The bill would eliminate the “maintenance of effort” provision that requires states to maintain current benefit levels until 2014, when the federal health reform law will expand Medicaid coverage. The House Energy and Commerce Health Subcommittee recently passed the bill, and the legislation is expected to pass both the full committee and a full House vote (Carey/Galewitz, Kaiser Health News, 5/23).
• Seven Republican senators recently sent a letter to HHS Secretary Kathleen Sebelius and CMS Administrator Donald Berwick calling for the Obama administration to rewrite accountable care organization rules to make ACOs more appealing and adoptable to providers. The letter — signed by Sens. Richard Burr (N.C.), Tom Coburn (Okla.), Mike Crapo (Idaho), John Cornyn (Texas), Mike Enzi (Wyo.), Jon Kyl (Ariz.) and Pat Roberts (Kan.) — said, “An ACO model that can increase provider coordination and patient accountability would be a step in the right direction compared with today’s fragmented delivery system. However, it is increasingly clear that this proposed rule misses the target” (Daly, Modern Healthcare, 5/24).

In the Courts

• The Obama administration is arguing that the Sixth Circuit Court of Appeals in Cincinnati should dismiss a lawsuit challenging the federal health reform law. In a brief filed last week, lawyers for the administration noted that one of the plaintiffs — Jann DeMars — has said she cannot afford to comply with the individual mandate. However, DeMars in October 2010 voluntarily bought health insurance. Lawyers for the administration wrote, “Because she has insurance, DeMars cannot show that the minimum coverage provision will cause her any economic injury, much less that such injury is imminent” (Haberkorn, Politico, 5/27).
• Last week, the 11th Circuit Court of Appeals in Atlanta announced members of the judicial panel that will hear oral arguments in a multistate lawsuit challenging the constitutionality of the federal health reform law. The panel includes two judges appointed by Democrats and one Republican appointee. The panel includes Joel Dubina, the circuit’s chief judge, who was appointed by President George H.W. Bush; Frank Hull, appointed by President Clinton; and Stanley Marcus, also appointed by Clinton (Norman, CQ HealthBeat, 5/25).

In the States

• Maryland Gov. Martin O’Malley (D) recently appointed six members to the state’s Health Benefit Exchange board, which will oversee the operations of the state’s health insurance exchange. The members of the board are: Georges Benjamin, executive director of the American Public Health Association; Lisa Dubay, senior fellow at the Urban Institute; Darrell Gaskin, an associate professor and health economist at the Johns Hopkins Bloomberg School of Public Health; Jennifer Goldberg, assistant director of health care advocacy at the Maryland Legal Aid Bureau; Enrique Martinez-Vidal, vice president of AcademyHealth and director of State Coverage Initiatives at the Robert Wood Johnson Foundation; and Thomas Saquella, former president of the Maryland Retailers Association (Sharrow, Washington Business Journal, 5/26).
• Several prominent Republican governors have begun planning and implementing state health insurance exchanges established under the federal health reform law, despite strong opposition and legal challenges from other GOP lawmakers. For example, Mississippi Gov. Haley Barbour (R) has supported efforts by his insurance commissioner to set up the exchange using the state’s high-risk insurance pool. Indiana Gov. Mitch Daniels (R) has issued an executive order to allow the state to receive one of three $6.8-million federal grants to establish an exchange. Other Republican governors, including Brian Sandoval (Nev.), Nathan Deal (Ga.) and Bob McDonnell (Va.) also have endorsed establishing health insurance exchanges (Kliff, Politico, 5/29).

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