Texas Governor Wants Medicaid Reforms, More Private Insurance

Published June 1, 2007

Texas Gov. Rick Perry (R) is proposing several bold steps to reform the state Medicaid program and help the uninsured purchase health insurance, including subsidies to help people buy private insurance and fund Health Savings Accounts.

Texas’s Medicaid program has doubled in cost during the past decade. The program now serves 2.7 million people and consumes about 26 percent of the state’s budget–more than $17 billion in 2005. That included $6.73 billion in state funds and $10.54 in federal funds.

Perry’s reforms aim to hold down costs and give Medicaid-eligible residents more control over their health care.

Alternative to Medicaid

Perry’s plan to assist the uninsured, called Healthier Texas and announced in February of this year, would cover an estimated two million residents. Rather than expand traditional Medicaid, the state would provide subsidies for the purchase of health insurance for families earning up to 200 percent of the poverty level.

The funds also could be used to subsidize workers with access to employer-sponsored health insurance. Premiums would be charged on a sliding scale based on recipients’ income. All participants would be required to pay low deductibles and co-payments for health care services.

Low-income recipients also would be allowed to use the subsidy to fund Health Savings Accounts (HSAs), which they could use to pay deductibles and co-payments.

Medicaid Waiver

Perry also proposes to reform the traditional Medicaid program. The state would request a waiver from the federal government allowing Texas to offer customized benefits packages to meet the different needs of diverse populations.

“Washington’s ‘one-size-fits-all’ approach to Medicaid is bankrupting our state,” said a spokesman for Perry. “Innovative reform measures, such as tailored benefit packages and premium assistance, will help Texas meet the needs of our population–without any additional cost burden to the state.”

According to the governor’s office, recipients who have access to employer-sponsored health plans could opt out of Medicaid and use the subsidy to purchase private coverage through work. Texas Medicaid also would allow HSAs and consumer-directed health care services.

Three-Share Program

Another part of the governor’s proposal is the Texas Three-Share Program, named for a feature that includes cost-sharing among the state, employers, and employees with employer-provided health insurance.

In late 2005 Texas submitted a waiver request to the federal Centers for Medicare and Medicaid Services for a Three-Share Program in Galveston County. The waiver approval is still in process, but it is expected to be approved. Perry would like to expand the program statewide.

The Three-Share plans have less-generous benefit packages than traditional health insurance, focusing coverage on primary care, specialty care, drugs, and limited inpatient services. Three-Share Program participants would include small employers with fewer than 25 or 50 employees.

Health care premiums would be split among the state, the employer, and the employee, with each paying roughly one-third. State officials estimate the cost of premiums would average $150 to $180 per month.

State Lottery Sale

Perry proposes to fund the program by selling the Texas lottery to a private venture. An estimated $2.7 billion from the sale of the lottery would be used for health insurance for the uninsured, with additional funds for cancer research.

Some health care experts say more needs to be done to improve the Texas Medicaid situation.

For instance, Texas should broaden its asset recovery program, according to Stephen Moses, president of the Center for Long-Term Care Reform in Seattle, Washington and author of a recent study on reforming the Texas long-term care (LTC) program.

Texas was slow to start an asset recovery program, doing so in 2005.

“Texas’s important, though belated implementation of a Medicaid estate recovery program will help recoup some of the wealth sheltered by Medicaid from LTC costs in the past, but structured as it currently is, it will likely bring in only a fraction of the non-tax revenue that it should,” according to Moses’s report.

Market-Oriented Reforms

Michael Bond, a senior fellow with the National Center for Policy Analysis and advisor to several state reform efforts, said, “Texas should empower the poor of its state to buy their health care from competing providers. By offering enrollees Medicaid credits based on their health status, they will become valued customers to the providers. Providers, seeking to enroll beneficiaries, will compete vigorously for their business.

“This real marketplace will produce better quality care and lower Medicaid’s long run inflation rate,” Bond continued.

Mary Katherine Stout, vice president of policy for the Texas Public Policy Foundation, said Texas really needs to ask the federal government to block-grant all federal funds. “The Texas legislature is right to be looking for program reforms, but unfortunately the real problem here is the financing,” she said.

“The matching arrangement without any limitation on federal funds simply rewards big-spending states with big federal money,” Stout continued. “Instead, Texas should make a trade with Washington, getting program flexibility for the state in exchange for budget certainty in Washington.”

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

For more information … “Don’t Mess with Texans’ Long-Term Care–Fix It!” by Stephen Moses and Mary Katherine Sout, Texas Public Policy Foundation, February 2007, http://www.texaspolicy.com.