Medicaid: Ticking Time Bomb for Texas, Other States

Published May 25, 2012

Texas Republican Governor Rick Perry recently described the state’s Medicaid costs as a “ticking time bomb” that will threaten the state’s finances even more unless President Obama’s health care law is struck down by the U.S. Supreme Court or repealed by Congress.

According to calculations by The Heritage Foundation based on data from the Centers for Medicare and Medicaid Services (CMS), Texas’s Medicaid population will increase by 56.7 percent in 2014 under Obama’s law. That means millions of additional Medicaid recipients in a program which, according to Stephanie Goodman, communication director for the Texas Health and Human Services Commission, is already dramatically increasing in size.

“In 1991, Medicaid accounted for 14 percent of the state budget,” said Goodman. “Today, it’s 25 percent.”

Increased Eligibility, Enrollment

Spencer Harris, a health care policy analyst at the Texas Public Policy Foundation, said the Lone Star state faces significant cost increases for Medicaid due not just to the expanded coverage under Obama’s law but also to expected increases in enrollment among currently eligible Texans.

“As we all know, ObamaCare expands eligibility up to about 138 percent of the poverty level. Mainly it brings in an entirely new eligibility class: childless adults. These are people who were not eligible previously, and that’s going to be a big cost to the state,” Harris said.

“The cost comes not in the newly eligible people, because they’re covered by the law 100 percent. The cost comes because people who are currently covered, but not enrolled, are going to enroll under an individual mandate and [because of] churning between insurance exchanges,” Harris said. “Those people will be covered under the current match rate, which is about 60:40 in Texas.”

Medicaid Taking Over Budget

Harris says Medicaid will soon become Texas’s biggest budgetary line-item, as it has in other states.

“As a proportion of the state budget, Medicaid spending has grown faster than any other during the last twenty years,” said Harris. “It has grown faster than public education, but it is still a smaller proportion of the budget. But we think that if it continues as it is, and education continues on the trend line that it is, it’s not going to be long before [Medicaid] surpasses [education] as the biggest item in the budget.”

Medicaid is already the largest budget item if all revenue is included.

“There are two ways to look at it,” said Harris. “We have a ‘General Revenue’ budget, and we have an ‘All Funds’ budget which incorporates the federal money and the state money. Medicaid is a little over 20 percent of our state budget if you just include the state funds, but if you look at the federal money is closer to 30 percent.”

Rising Dual Eligibility Problem

Harris also notes the costs of dual eligibles—elderly Americans eligible for both Medicare and Medicaid—will become a larger problem nationally as the population ages and people see the financial advantages of accessing both programs.

“There’s also another part of this that has nothing to do with ObamaCare, and that’s our aging population. That’s the other big factor in what makes Medicaid a ‘ticking time bomb’,” Harris said. “As this population starts to enter the program, the costs are going to escalate rapidly.”

Harris notes the first round of baby boomers are already entering retirement.

“We think we’re hitting that moment right now. We think the 2014-15 biennium is going to be the first biennium when we see costs ramp up,” Harris said.

States Seek More Flexibility

Edmund Haislmaier, senior health care policy analyst at the Heritage Foundation in Washington, DC, says many states are facing the same problem as Texas but on a smaller scale.

“Is Medicaid a problem? Yes,” said Haislmaier. “Right now it’s particularly acute because states are under even more restraint than normal as to what they can do with their program because of the maintenance-of-effort requirement in Obama’s law which says that they can’t change stuff or cut back benefits, and on top of that they’re coming out of a recession.”

Haislmaier says he thinks if the Supreme Court strikes down Obama’s law, action on Medicaid will be a top priority in Congress and state legislatures.

“I think if the Court were to strike it down, one of the first things you would see is states, free of their maintenance-of-effort requirement, would immediately start making adjustments to their Medicaid systems because of the costs,” Haislmaier said.

Push for Block Grants

Harris expects a strong push for more flexibility following any Court decision.

“It is our position that the state is in a better position to run this program than is the federal government,” Harris said. “If they want to fix this program, if they want to reduce the costs and control the growth, what they need to do is block-grant the program to the states and let us take care of our citizens the way we know is best.”

That would require Congressional approval, which Harris says is a realistic possibility.

“Ultimately, the whole thing has to be completely revamped,” Harris said. “That’s what we’ve been arguing, and that’s going to require federal action. Ten years ago we had some flexibility. We really don’t have that now.”