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Texas Braces for Medicaid Status Quo

 |  By John Commins  
   June 05, 2013

By opting not to expand Medicaid, Texas is passing up an estimated $90 billion in federal funds over the coming decade, leaving its healthcare providers, especially hospitals, in a tough financial spot. Rural care facilities are especially vulnerable.

The Medicaid enrollment expansions that take effect on Jan. 1, 2014 under the Patient Protection and Affordable Care Act are expected to extend health insurance coverage to as many as 17 million Americans, depending upon who's doing the calculations and how many states eventually sign on.

For healthcare providers in most states, the expansion represents a windfall of billions of dollars. The federal government will pay for the entire cost of the expansion through 2016. After that, the cost will gradually shift toward the states, but the feds will still pay 90% of the cost after 2020.  

The expansion offers coverage to people who earn as much as 138% of the federal poverty level, which is $15,400 for one person and $31,800 for a family of four.  

Given that hospitals and healthcare are huge economic drivers, those new Medicaid dollars could prove to be as valuable for economic activity and job growth as they are for improving population health. The Medicaid money will also free up local property and sales taxes that would otherwise be used to prop up charity care.

Under such circumstances, expanding the Medicaid rolls would seem like a no brainer. After all, the need is already there. People are going to get sick and need medical care regardless of whether or not they are insured. That care is going to cost money. Medicaid expansion simply answers the question of who is going to pay for it.  

However, as we have seen over the last three years, the politics of "Obamacare" are so toxic that at least 14 states have said they will not expand coverage. "If the discussion is purely about money, it's hard to just walk away," says Matt Salo, executive director of the National Association of Medicaid Directors. "But this is not just about money. This is very much about politics and ideology."

More than any other state, Texas has come to represent "not just 'no' but 'hell no'" opposition to Obamacare, even though the Lone Star State has the highest percentage of uninsured citizens in the United States. It has been estimated that as many as 1.7 million Texans could gain coverage with the expansion, which would also funnel about $90 billion in federal dollars into the state over the next decade.  

Governor Rick Perry and other key Republican leaders, however, have led the opposition, with Perry calling the expansion plan "a misguided, and ultimately doomed, attempt to mask the shortcomings of Obamacare. It would benefit no one in our state to see their taxes skyrocket and our economy crushed as our budget crumbled under the weight of oppressive Medicaid costs."

Instead of another federal mandate, Perry has called for "the flexibility to care for our own in a manner that makes sense both effectively and financially."

The problem is that the Texas legislature, which meets once every two years, adjourned this spring without taking any action on an alternative to the federal expansion plan. They could call a special legislative session to address the expansion, or it could be done administratively through the Perry administration, but those options appear unlikely right now.

As a result, when Jan. 1, 2014 rolls up, "the poorest Texans will be left out," says Anne Dunkelberg, associate director of the nonprofit Center for Public Policy Priorities.

"If they live in a big city they might be able to get some help from their local hospital district and what group gets served depends on what city they live in. That is going to be funded by 100% local property tax dollars instead of 100% federal funds. And if they live in a more rural county they may have no options. There may be no public program that is going to help them."

Dunkelberg says various studies have estimated that Texas will lose about $6 billion [PDF] a year over the next decade and beyond in federal subsidies because it won't expand the Medicaid rolls. "The funds would have created hundreds of thousands of jobs, the estimates ranged from between 215,000 to 300,000 jobs a year," Dunkelberg says.  

"The amounts of money that are potentially going through communities—urban and rural—are fairly staggering and potentially having a big boost in terms of economic development in some parts of the state and certainly offsetting large amounts of uncompensated care that is currently funded with local property tax dollars. We are leaving that money on the table."  

Left holding the bag, of course, will be healthcare providers, especially hospitals. They get the worst of both ends. They don't reap the benefit of seeing more insured patients, and their reimbursements for Medicare and Medicaid are being cut through the federal budget process and sequestration mandates.  

"It's a difficult financial model," says John Hawkins, senior vice president for government relations at the Texas Hospital Association. "Trying to balance those cuts without being able to expand coverage is going to be difficult going forward."

In all likelihood, dwindling funding could mean that some smaller or financially strained hospitals will close. "For rural hospitals that is probably more the reality. In other areas you will see hospitals limit services which can be equally as challenging for their communities," Hawkins says.  

"You are going to have worse health outcomes, particularly in areas where facilities have to limit services. Folks will have to drive farther. Your workforce isn't going to be as productive because of lack of coverage. The bigger impact will be poorer health outcomes and less-productive state."

It's not just the usual public advocacy groups who are calling for expanding the Medicaid rolls. Leading business groups in Texas have called for some sort of action. Hawkins says there has been a "continued drum beat" for expanding the rolls from a wide swath of special interest groups that recognize what is at stake.  

"Certainly folks are concerned about the level of uninsured. They are concerned about the cost of healthcare. They understand the cost shift to taxpayers and the private market. There is a lot of discussion about it, but the general political headwind in this state against Obamacare is difficult to overcome," he says.

Perhaps the best hope for states that are ideological entrenched against Obamacare lies with the so-called Arkansas Medicaid Model, which would use Medicaid expansion money to subsidize premiums for commercial plans purchased through health insurance exchanges. That proposal is still being vetted by the Centers for Medicare & Medicaid Services.

It's not clear if Texas would adopt a similar plan. Even if it did it's not clear if the state could expand its rolls by Jan. 1, 2014 deadline.  

Hawkins remains optimistic that some sort of solution will be reached.

"Actually, in retrospect, we are pleased the debate got as far as it did where we were actually talking about alternatives because early on it looked like folks were being reticent even to have that discussion given the will of the leadership," he says. "But we did advance the discussion even to the point where if things in other states continue to move forward we may have a chance to revisit this administratively."  

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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