From The Politics of Medicaid, by Laura Katz Olson:
Ronald Reagan[‘s] […] White House […] could not achieve one of the primary goals under its “new federalism” approach to social welfare, the conversion of Medicaid into block grants to the states. […]
Reagan had persuaded Congress, under the Omnibus Budget Reconciliation Act (OBRA) 0f 1981, to combine seventy-six different categorical programs into nine block grants, accompanied by a more than 15 percent reduction in their combined funding levels. […] The president could not, however, broaden the scope of these consolidations — and severe cuts — to include welfare medicine because of forceful bipartisan congressional and gubernatorial resistance. Instead, the legislators agreed to a temporary, lesser decrease in the federal match in exchange for greater state autonomy and flexibility over their programs. […]
[George H.W.] Bush, like Reagan, was not successful in his block-grant approach to welfare medicine. Labeling it a “Medicaid modernization plan,” he had proposed offering the states more power to design their benefit packages in exchange for federally capped allotments and loans. Because of ongoing resistance by national Democratic leaders […] and by most governors and state officials […] the administration’s block grant initiatives never moved forward.
Welfare medicine found itself at the center of national debate in 1995, at which time the newly elected Republican Congress set out to confront both the low-income health program and the Clinton administration head on. […]
Through the budget reconciliation process, they accordingly pushed through a somewhat revised version of Reagan’s block grants that would have repealed Medicaid as an entitlement, replaced it with “Medi-grants,” and provided for significantly greater local control over the program. […]
Unlike the earlier Reagan measures, which the states had unanimously opposed, [this …] block grant proposal developed into a highly partisan and ideologically divisive issue, supported by congressional Republicans and nearly all of the Republican governors. […] The block-grant proposal, because of its stark reduction in federal funds, […] encountered resistance from many of the major health care lobby groups, whose members would be negatively affected.
Clinton famously vetoed the 1995 budget act, which included the Republican’s Medicaid provision, thereby temporarily and partially shutting down the federal government twice. […]
[George W. Bush] planned to achieve roughly half of his proposed budget cuts to Medicaid in 2007 […] through additional directives. Again, the administration intended to promulgate these cuts on its own. [… M]ost of the savings would shift costs to the states.
Protests emerged form all sides almost immediately. The pharmaceutical trade associations […] hospitals and governors, supported by 64 U.S. senators and 263 representatives, similarly contested the reductions. […] In several short months, nearly all of the regulations had been incorporated into a congressional measure delaying their implementation for a year.
Undeterred, the Bush administration not only reinstated the previous rules, but issued some new ones the following year. Again a mix of special-interest groups, governors of both parties, and the National Conference of State Legislators fervently opposed them. Congress voted to postpone six of the seven regulations for another year. […] Shortly after Barack Obama’s election in 2008, Congress continued the moratorium as part of the American Recovery and Reinvestment Act, and, several months later, the U.S. Department of Health and Human Services (HHS) issued rules permanently rescinding implementation of four of them.