Let’s Have an “Adult Conversation” about Opting Out of Medicaid – Say Ahhh! A Children’s Health Policy Blog


By Anne Dunkelberg, Center for Public Policy Priorities, Texas

Just last August, Texas advocates chuckled and sighed
along with our Arizona colleagues when the Onion ran the headline, “Texas Vows
to Reclaim Title of Most Regressive State from Arizona.”  That satire piece included references
to our Governor Rick Perry’s very real 2009 statements about the possibility of
Texas’ secession option.  Perry distanced
himself from his secession comments then, but recently kicked up a whole new
flurry of media attention when he suggested on national television (CNN 11/7 /2010; Daily
11/8) that Texas might consider shutting down its Medicaid program
entirely, and claimed a potential state savings of $60 billion dollars over several years.  The interviews were part of
the book promotion tour Perry launched immediately following the November
election, and were in keeping with the states’ rights theme of that book,
entitled “Fed Up”.  

The Governor
based his projections on a December 2009 memo from the Heritage Foundation,
prior to the March 2010 passage of the Affordable Care Act.  That memo speculated that the bill
eventually passed might allow states to shut down their Medicaid programs in
2014, and send their former Medicaid enrollees to the new health insurance
exchange where their costs would be entirely borne by the federal budget.  (Perry also complained about CMS not
having approved a Texas 1115 waiver submitted in 2008.  CMS authorities told Texas in August
2008 that Texas’ proposal covered too few adults, too slowly, and with too
limited benefits–waiver request examples included a benefit package capped at
$25,000 a year–to justify the significant departures from federal minimum
standards Texas had requested.)

Of course, rhetoric like this is enough to make a policy
analyst/health access advocate want to tear her hair out, but a funny thing has
happened over the last six weeks since that first story:  a whole lot of Texans have learned a
whole lot about Medicaid and the critical role it plays in our state’s health
care system and economy.  News
after story drummed these facts home:  leaving Medicaid would cause Texas to lose over $16 billion
a year (at 2009 levels) in our federal matching funds–the number one source of
federal dollars in our state budget. 
We would lose federal funding for over two-thirds of Texans in nursing
homes, over 55% of Texas births, for virtually all residential services and
community services and supports for Texans with disabilities, and health
coverage for the nearly 3 million Texas children covered today by Medicaid and

News coverage also quickly reflected the alarm of Texas
health care leaders at the notion of a Medicaid apocalypse including the
president of the Texas Medical Association, and the heads of state associations
representing nursing facilities, community health centers, family physicians,
and hospitals.  Most colorfully,
Dr. Ron Anderson, President and Chief Executive Officer of Parkland Hospital
System, went on Dallas radio to call the concept “so bizarre as to be
unworthy of consideration.” 

The Governor’s book tour comments were followed a few
weeks later–coincidentally it appears–by the scheduled release of a report
mandated under 2009 state law which directed the Texas Health and Human
Services Commission (THHSC) to study “the effect on the health care
infrastructure in the state if the state Medicaid program is abolished, or a
severe reduction in federal matching money under the program occurs.”  That report underwent some late revisions
to directly address the new question of a state-initiated, (rather than
federally-driven) Medicaid withdrawal.

The report from our state Medicaid agency is a very good and helpful compilation of
important information.  Like
earlier reports by Wyoming and Nevada, the Texas report lays out in
detail the critical role of the federal-state Medicaid partnership in caring
for poor and low-income Texans who have disabilities or are over age 65,
providing prenatal care and delivery services, supporting safety net hospitals
in managing the burden of Texas’ 6.4 million uninsured, and providing
comprehensive health care for millions of Texas children.  The report details the expected “down
sides” to shutting down Texas Medicaid, among them:

  • The loss of a significant chunk of our state’s health
    care economy–with no offsetting reduction in federal taxes.  Medicaid and CHIP spending accounts for
    over 15% of Texas health care.
  • Most former Texas Medicaid enrollees would be
    uninsured.  Seniors and other Medicare
    dual eligibles would remain insured by Medicare but would lose their Medicaid
    wrap-around coverage or assistance with out-of-pocket costs; the relatively
    small share of Texas Medicaid enrollees with incomes above 133% FPL (largely
    long-term care recipients) plus children in Texas CHIP could enroll in the
    exchange.  (The agency expects that
    interpretation of A.C.A. will not allow for persons defined as Medicaid
    eligible in that law to qualify for exchange premium tax credits.)
  • THHSC estimates an annual increase of $4 billion or
    more in uncompensated hospital care due to emergency admissions to former
    Medicaid enrollees.  Substantial
    cost-shifting to county governments and hospitals for care to these newly-uninsured
    would occur.
  • The addition of such a large group of uninsured
    (another 2.6 million or more) to Texas already-huge 6.4 million uninsured (2009
    Census CPS) could trigger a serious adverse selection crisis in Texas’
    commercial insurance market, by adding to the estimated $1,551 in annual excess
    premium costs already being borne by insured Texas families. 
  • The state’s share of Medicaid spending would be just
    enough to continue longer-term care (community and institutional) and coverage
    for children in foster care, with no net savings and all of the negative
    effects and risks described above.

The report doesn’t neglect the conservative point of
view.  The agency proposes several
scenarios for major future changes to Medicaid, most of which would require
major federal law changes. They include:  

  • A “consolidated annual funding” approach to Medicaid,
    much like the per-capita cap proposals of the 1990s, would be a block grant
    that would growth annually based on inflation, population growth, “and other
    factors.”  The agency envisions
    that states would have fewer floors on who is covered and what services they
    get than in today’s federal Medicaid law. 
  • The current formula for “FMAP” is criticized for
    failing to take into account relative poverty and uninsured rates across the
  • Texas could pursue an 1115 waiver to allow clients to
    buy high-deductible coverage linked to a health savings account.
  • Texas could pursue federal law changes to allow states
    to provide more limited “benchmark” benefits to low-income children and
    pregnant women.
  • The federal government should pay 100% of the costs of
    Medicaid emergency care as well as other uncompensated care provided to
    undocumented residents.
  • The Affordable Care Act’s maintenance of effort that
    prevent Medicaid and CHIP eligibility rollbacks should be waived or eliminated

Affordable Care Act impact revisited.  The report also revisits THHSC’s early
(and high!) estimates of the Medicaid-related state budget costs expected to
accompany Affordable Care Act implementation.  The agency notes that excluding some of their earlier
worst-case assumptions (e.g., assuming the state will assume 100% of the costs
of Medicaid primary care rate increases from 2015 forward) reduces their net
state-dollar cost projection to $5 billion for 2014 to 2019.  The report notes that THHSC’s $5
billion net cost estimate (which assumes 91-94% take-up rates in the expanded
Medicaid coverage of adults, offset by $760 million in additional Medicaid
managed care premium tax collections) is still higher than the Kaiser
Foundation-Urban Institute analysis that projected a high-end state cost from
2014-2019 of $4.5 billion–largely due to the latter’s much lower 75% take-up

THHSC’s report did not mention the over $74 billion in
federal matching funds that would accompany the new Texas Medicaid spending,
and declined to assume any economic multiplier effect from those dollars.  They did note that short-term
multipliers (such as the 3.64 used by Families USA) are assumed by some
economic models, but they also note an unpublished report from two economists
which asserts that “every $200 million in federal matching funds reduces gross
state product by $1.8 billion, a multiplier of -9.0.” 

Medicaid Red Herring?  The report points to the need for Medicaid’s “unsustainable”
growth rate to be controlled to keep it within population, general inflation,
and GDP growth.  This argument,
while not without merit, points to perhaps the most serious problem with this
highly politicized discourse around state Medicaid spending.  The “Medicaid Opt-out” talking point is
based on and reinforces a misperception; namely, that Medicaid is uniquely
troubled by rising care costs.  In
reality, the CBO reports that growth rates for Medicare, Medicaid, and “All
Other” U.S. health spending have out-stripped GDP growth consistently since
1975.  Medicare logged the highest
cost growth in excess of GDP, and Medicaid “tied” with All Other health
spending over that entire period, despite having grown at a much slower rate
than the rest of the system since 1990.  

As a nation, we face a serious challenge of reining in health spending
across our entire population and economy, not just in Medicaid.  The “adult conversation” we need to
have on reducing federal deficits and debt can’t take place as long key leaders
believe they can solve the nation’s health care and debt challenges simply by
cutting or eliminating Medicaid.  

What we are Learning.  Perhaps the experiences of Wyoming, Nevada and Texas will be
enough to dissuade other states from traveling too far down the Opt-Out
road.  But if those too-good-to-be-true
talking points (Drop Medicaid! Save Money!, Nobody Gets Hurt!) do arrive in
your state, be prepared to seize the teachable moment and help tell the real
story of Medicaid and CHIP.  It is
so important that the new round of freshman lawmakers get the facts about
Medicaid/CHIP’s critical role in caring for Americans.  In the process, you can not only
protect your state’s most vulnerable citizens, but also raise critical
awareness that real solutions to our country’s health care spending woes will only
come from hard work that looks across all populations and sources of coverage.

The views expressed by Guest Bloggers do not necessarily reflect the views of the Center for Children and Families.

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