Supreme Court Decision on ACA Forces Texas to Have an Honest Conversation about Medicaid


Many people have asked me what I think of the recent Supreme Court decision upholding the constitutionality of the Affordable Care Act (ACA).  The simple answer is that, despite my reservations about some parts of the bill, it is potentially great news for Texans.

Official estimates are that the ACA will help at least three million Texans get health insurance coverage through the expansion of the Medicaid program and through subsidies for health insurance through the health insurance exchange. That is good for Texas. Even better, the Federal government will pay the majority of the costs for the expansion of coverage (Texas has always sent more tax dollars to Washington than we get back in benefits, but in this case Texas is a big winner in new federal dollars).

One of the best parts of the decision was the striking of the requirement that states must expand the Medicaid program or lose funding for their current Medicaid program. So why would a guy who runs a managed care organization (MCO) that would benefit greatly from the Medicaid expansion say that?

It is clear to me the Medicaid expansion is good for Texas in lots of ways, but I share the concerns that many State leaders and taxpayers have about the potential to pour billions of more dollars into a system that every year is taking up a growing part of the State budget.  The good news in the decision is that rather than forcing the expansion on Texas, it gives us a choice. The huge amount of money and other benefits at stake demands that we have an honest, fact-based discussion of the current Medicaid program and why the expansion, if done correctly, will benefit Texas without breaking the State budget.

Here are some of the clear benefits to Texas of the Medicaid expansion:

  • It will cover between 1.5 and 1.8 million Texans who are now uninsured. Many of those are parents of CHIP and Medicaid kids, including women who were eligible for Medicaid during their pregnancy and delivery, who will be able to keep Medicaid coverage.
  • It will reduce uncompensated care for hospitals and doctors by billions of dollars.  That is great news for hospitals, but it is also good for employers who offer employer-sponsored insurance to their employees. Currently, the cost of that uncompensated care is shifted to those of us with insurance through higher payments to providers to offset the uncompensated care, resulting in higher insurance premiums we all pay. Estimates are that the uncompensated care “tax” those of us with insurance pay is about $1,000/year per employee for family coverage1. That “tax” could be cut in half.
  • We will move these currently uninsured folks out of the emergency rooms and into primary care based “medical homes” that will provide better coordinated, preventive care at a much lower cost before it becomes an emergency.
  • Counties will benefit as their State-mandated, indigent care programs will be dramatically reduced or eliminated as many currently in county indigent care programs will become eligible for Medicaid.
  • The Medicaid expansion will be paid 100% by the Federal government for the first three years. Beginning in 2017, the Federal government will pay a small percentage less per year until 2020 (and beyond) when they will bottom out at 90% per year. That is projected to be up to $10 billion dollars/year.  That is a lot of new dollars coming to Texas to help us add doctors, clinics, and other providers needed to care for these new members. If these funds were for NASA or transportation or homeland security, there would be no debate as to whether we should take the money.
  • Economist Ray Perryman estimates that for every federal dollar brought into the State, it will be multiplied by 3.25 in economic activities… the new jobs created by the expansion and spending of the staff of the hospital, doctors, and others.  This is a big economic boon to the Texas Medical Center and many others in the Houston area.
  • We can find the 10% State match needed in 2020. 20% of that State match will come directly from MCOs like CHC that will administer the program, through State premium taxes that we pay each year. In the first three years of the expansion, when it is paid 100% by the Federal government, we will build a nest egg of $500 million from those premium taxes to use in future years. In addition, reductions in the cost of indigent care programs administered by public hospital districts and counties will cover part of the cost. Reductions in other State programs, like the Women’s Health Program that becomes part of Medicaid, will cover the rest of the State match required. No new taxes will be required, ever, if we implement the expansion wisely.
  • We always worry about Federal “strings” attached to funds, but the strings aren’t too bad in the Medicaid expansion. The law allows Texas to utilize a Medicaid flexibility waiver to do the expansion in a way that works for Texas. We in Texas can decide what the benefits are for the expansion population and other components of the program.  It does not have to be a one-size-fits-all Federal program.

Obviously, there are many reasons why a Medicaid expansion would be good for Texas, and it almost seems that not doing so would be like throwing money away. But from an insider’s perspective, one important point about the Medicaid program is that we cannot proceed as usual. We have to change it so that it can be more efficient and make more health care sense, as I describe in Part 2 of this blog.

Fixing the Current Medicaid Program

State leaders are correct in saying we should not pour more money into the old Medicaid system. In the past 10 years, Medicaid expenditures have doubled, and grown from 15% to 25% of the State budget. That growth rate is unsustainable. But rather than turn away billions of dollars that would benefit all Texans, we must seize the opportunity to modernize the current Medicaid system at the same time we expand coverage. So what’s wrong with the current system, and what are we doing to fix it (with or without the ACA, we must do that):

Too Many Poor People

  • There are multiple drivers of the cost increase, but by far the biggest portion of the increase is due to the doubling of people who are eligible for Medicaid.  It’s not new categories of eligibility for the program or higher income levels allowed. We simply have a lot more poor people in Texas now than we did 10 years ago, growing from fewer than two million covered under Medicaid to nearly four million.  Costs have doubled almost exclusively due to population increase.
  • Some leaders are calling for “block grants” in the Medicaid program. I agree with the sentiment that says just give us the money, and we will determine the best way to spend it. But we must be very careful in talking about block grants. A fixed dollar block grant that does not increase with population could lead to capping enrollment and waiting lists for eligibility. But health care cannot and should not wait. We have the moral imperative to protect and provide care to all vulnerable citizens, just as we must educate all children, not put some on a waiting list. A fixed block grant 10 years ago would have totally crippled, if not destroyed, the current safety net programs.
  • Ironically, the Medicaid cost problem cannot be fixed simply via the Medicaid program. The only way to fix the problem long-term is to invest in education, so that kids on Medicaid graduate, get good jobs, and are no longer eligible.  We also need to invest in vocational job training that will produce higher paying jobs.

Medical Cost Increases (Not really the problem any more)

Medicaid managed care costs per enrollee in Texas have been relatively flat for the past 10 years (with the exception of the forced increase in payments to doctors in 2007 under the settlement of the Frew lawsuit). In fact, with the continued expansion of the Medicaid managed care programs, cost per enrollee has decreased 5% in the Houston area in the last five years.  Any employer would love that kind of trend and would understand that the total cost still goes up if they cover more people.

  • The legislature did a lot in 2011 with SB7 to improve the Medicaid system. As it relates to medical costs per enrollee, the old Medicaid system is essentially gone with the final expansion of Medicaid managed care in March 2012. The benefits of those changes will continue for years to come.
    • The managed care expansion to the Rio Grande Valley and rural areas is saving the State hundreds of millions dollars, while actually improving access and coordination of care.
    • MCOs have helped HHSC reduce the prescription drug spend for the Medicaid program by 6% with no disruption of access.
    • Working with the HHSC office of inspector general, MCOs are quickly stopping fraud, waste, and abuse in dental, speech and physical therapy, and home health care portions of the Medicaid program.
    • The waiver that allowed the managed care expansion also allowed Texas to continue supplemental payments to hospitals for uncompensated care and delivery system reforms, replacing the old, Byzantine “Upper Payment Limits” program.
  • MCOs, HHSC, and provider groups are developing new payment mechanisms to continue the trend of aligned incentives and lower costs by reducing services that do not help improve health outcomes.

Building Personal Accountability

We are on the right track to controlling costs per enrollee, but we need to do more to build personal accountability for enrollees. We can do this through the Medicaid Flexibility Waiver that was included in last year’s SB 7.  It would replace old 1960’s era definitions of covered services with Texas-specific essential health benefits, include copayments and other cost-sharing strategies, and utilize market solutions that transform the program more into a voucher system where enrollees pick an MCO that covers all costs for one price. We can adjust cost-sharing requirements of the program for each year an individual is enrolled, to provide a bridge to private subsidized insurance in new health insurance exchanges and movement off Medicaid rolls.

If we can just get past the politics of “repeal and replace,” and instead focus on how to best utilize and improve the ACA, the Medicaid expansion and the subsidies in the new Health Insurance Exchange will be game-changers in reducing the uninsured in Texas, while directly or indirectly benefiting every business in the State. MCOs like Community Health Choice stand ready to help implement the expansion in a way that can be a model for the rest of the nation.




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