Texas Considers Withdrawing from Medicaid

Published May 31, 2016

The rising cost forecast for Medicaid in the coming years has some Texas legislators questioning whether their state would be better off opting out of the system entirely.

Concerned the escalating cost of Medicaid was far outpacing tax revenues, in 2009 state Representative John Zerwas (R-Houston)—an anesthesiologist—introduced House Bill 497 directing the Texas Health and Human Services Commission to determine the effect on the state’s health care infrastructure if Medicaid funding were severely reduced or abolished.

“We hoped to realize the economic impact of the Medicaid program that the state provides without any matching funds,” Rep. Zerwas told Health Care News.

Report on Possible Transition

Stephanie Goodman, a spokesperson for the Texas Health and Human Services Commission, describes the bill as calling for information.

“It never mentions opt-out. It does direct us to look at how clients could be transitioned to a new health care system if that became necessary, and our report will look at some possible options,” Goodman said.

President Obama’s health care law significantly expands Medicaid eligibility, particularly in Texas. Within a decade after implementation, 2.4 million addition people will flood Texas Medicaid rolls under the new law. According to state estimates, 1.5 million enrollees will be newly eligible and an additional 824,000 individuals were previously eligible but not enrolled.

The latter will cost the state more because the federal government will contribute a much smaller share of their cost compared with newly eligible ones. The additional costs will strain the Texas budget, which is already facing a $25 billion shortfall.

A report will be ready in advance of the January legislative session. Goodman notes the decisions after release of the report would be up to the legislature.

Billions in Savings

The Texas Health and Human Services Commission estimates Texas’ cost for the first full decade of Medicaid expansion will be $27 billion. The federal government will pay about 95 percent of costs through 2019, but Zerwas notes there is uncertainty about whether the federal government can sustain funding past 2019.

An analysis by the Heritage Foundation predicts Texas could save $60 billion between 2013 and 2019 by dropping out of Medicaid and the State Children’s Health Insurance Program (SCHIP).

Zerwas says it is important to consider at the impact on Texas if federal funding funds are ratcheted down. If Texas were to withdraw from the Medicaid program, he believes it could be replaced with a state-run indigent health care program free of federal mandates.

“The program would be uniquely designed to meet the needs of Texans based on the amount revenue the state generates through taxing mechanisms,” Zerwas said.

Would Poor Suffer?

Representative Mark Shelton (R-Fort Worth) worries hospitals might suffer and the poor will face difficulty accessing care if Texas loses federal matching funds.

“I think there is a segment of society which we need to take care of—those that are vulnerable—particularly, the poor and their children,” said Shelton.

Shelton, a medical doctor, says it would be unwise to drop out of Medicaid before putting a viable alternative in place.

“Doing away with Medicaid could affect hospitals and other parts of health infrastructure in a very adverse way,” Shelton said.

Devon M. Herrick, PhD ([email protected]) is a health economist and senior fellow at the National Center for Policy Analysis.