Federal Officials Warn Texas: Expand Medicaid or Risk Hospital Funds

The federal government is holding state leaders’ feet to the fire, hoping to get Texas to expand its Medicaid program to provide health insurance to more low-income Texans.

Federal officials called the state's health agency this week to say that Texas' reluctance to expand Medicaid — a key tenet of President Obama's signature health law — will play into whether his administration extends a waiver that helps the state's hospitals cover uninsured patients.

The development follows news from Florida, where a similar tug-of-war is playing out between the federal government and a Republican-controlled statehouse that opposes Obamacare but hopes to renew billions of dollars in hospital funding. This week, federal officials sent a letter to Florida lawmakers that said Medicaid expansion “would reduce uncompensated care in the state,” making it “an important consideration in our approach regarding extending” the state’s hospital waiver.

Linda Edwards Gockel, a spokeswoman with the Texas Health and Human Services Commission, confirmed Friday that federal health officials called the Texas agency to relay a similar message.

Officials from the federal Centers for Medicare and Medicaid Services “said they recognize each state is different, but they intend to use the same three principles outlined in their letter to Florida as they evaluate uncompensated care funding pools in all states,” Edwards Gockel said in an email. “We don’t have more details than that at this point.”

The letter to Florida "articulates key principles CMS will use in considering proposals" in the Sunshine State, said Ben Wakana, a spokesman for the federal agency, in an email. "We will also use these principles in considering similar proposals in other states, but discussions with each state will also take into account state specific circumstances."

Tom Banning, chief executive of the Texas Academy of Family Physicians and an advocate for Medicaid expansion, said in an email that the call "should be a wake up." Annually, Texas hospitals receive billions of dollars combined by way of the federal "transformation waiver." Losing that money "will have a crippling effect throughout Texas," Banning added. 

The Texas hospitals waiver runs through September 2016, but the 2015 legislative session is the last chance for state lawmakers to negotiate a renewal before then. The current session is slated to wrap up on June 1, barring a governor-called special session.

Estimates for the value of that waiver vary. The Texas Hospital Association, which supports some form of Medicaid coverage expansion under the Affordable Care Act, estimates the waiver’s five-year value at $29 billion.

Texas received the 2011 waiver in part to reimburse hospitals for care provided to patients who couldn't pay for it. 

Two years later, state leaders under Gov. Rick Perry declined to expand Medicaid — the joint state-federal insurer of last resort — criticizing the program as inefficient. Texas was free to opt out of the expansion because of a U.S. Supreme Court ruling in 2012 that allowed states to do so. 

That left a “coverage gap” of more than 1 million Texans too poor to receive federal subsidies for private health insurance under the Affordable Care Act but too rich to qualify for coverage under Texas’ current Medicaid requirements.

Texas' Legislature has only moved farther to the right since previous battles over whether to expand Medicaid. This year, Senate Republicans stood with Lt. Gov. Dan Patrick to announce that they would not expand Medicaid.

“Any expansion of Medicaid in Texas is simply not worth discussing,” state Sen. Charles Schwertner, R-Georgetown, said at the time. Schwertner is chairman of the Senate Committee on Health and Human Services.

In Texas, Medicaid covers 4.1 million poor, disabled and elderly people, including children, and costs roughly $40 billion per year, of which the federal government pays 60 percent. The state leads the nation in the rate of people without health insurance — roughly one in four Texans.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.