The Medicaid Expansion Merry-Go-Round

Republicans who want to draw down billions in federal dollars to reform Medicaid and shore up the state's budget have been running in circles trying to find common ground between Gov. Rick Perry and the Obama administration and craft a “Texas solution.” And the party-line vote in the House on Thursday to reconsider legislative guidance on Medicaid expansion from the budget — even without an up-or-down vote on the substance — left the issue on life support. 

If Texas spends roughly $15 billion to expand Medicaid over the next ten years, the state could receive up to $100 billion from the federal government and insure an additional 2 million people. Local governments and hospitals, which currently foot the health bills for uninsured Texans, are putting tremendous pressure on state lawmakers to take that federal offer. And some fiscal conservatives say the state should leverage the opportunity for Medicaid expansion to reform the entire Medicaid program, and ultimately, cut state costs for the program down the line.

Perry, who remains firmly opposed to Medicaid expansion, said on Monday that it’s up to Kyle Janek, the state’s executive health commissioner, to start negotiations with the Obama administration on how to reform the state’s “broken” Medicaid program.

Janek has said that there are thousands of reform scenarios he could pursue, and he’s waiting for direction from the Legislature.

As the House flip-flop revealed, it is politically risky for anyone in the Legislature to make the first move, because Perry can — and presumably would — veto any legislation that would expand Medicaid. So far, Perry and his staff have not provided any guidance on what type of reform plan they would consider acceptable, except the pursuit of a no-strings attached block grant that would allow the state to redesign Medicaid without the intervention of the Obama administration. They haven't endorsed expansion of Medicaid even if the state were to receive a block grant for Medicaid.

That brings us back to square one: What is Texas going to do?

Sen. Tommy Williams, R-The Woodlands, and Rep. John Zerwas, R-Simonton, this week disclosed details — albeit fuzzy ones — on a plan to subsidize private health plans for people potentially eligible for Medicaid expansion. And they’ve taken an idea from former executive health commissioner Tom Suehs to use new revenue collected from policies purchased through the health insurance exchange as the state’s match to draw down the federal expansion dollars.

“What we’re looking for is an absolute source of revenue that has some certainty to it,” said Zerwas. “This allows us to comfortably draw down the money from the federal government.”

The health insurance exchanges — think of them as online shopping sites for insurance — are intended to help the uninsured and near poor find subsidized coverage, since everyone will be required to purchase health insurance in 2014. But Williams and Zerwas assume that it will take a few years for most people to actually purchase coverage. That could mean revenue generated from taxes on those new policies may not be sufficient until a few years have passed. Williams suggested the state could wait a few years to implement the plan; Zerwas said the state could approve such a plan now, and pointed out the federal government has agreed to pay 100 percent of Medicaid expansion enrollees’ health care costs for the first three years.

The problem: They are still unsure whether their proposed plan would work.

“First of all, I’m not in too big a hurry about this,” Williams said. “I want a program that emphasizes the private market over public care, and that’s really what we’re trying to get fleshed out in this plan.”

Texas cannot draw down the federal expansion dollars to subsidize private plans without receiving a waiver from or an agreement with the federal government. So far, Arkansas’ agreement with the federal government is the only available model for what the administration is willing to agree to in exchange for allowing the state to subsidize private plans.

The federal government gave Arkansas permission to use Medicaid expansion dollars to subsidize private coverage on the condition that the state provide any Medicaid benefits the recipients are not offered by their private plans. It’s referred to as a “wraparound” benefits model, and in essence, still requires Arkansas to expand its existing Medicaid program by some amount.

“This seems like the worst of both worlds. I’m not interested in doing that,” said Williams of Arkansas’ plan.

Legally, Arkansas had no choice but to agree to a “wraparound” benefits models in order to use the financing to subsidize private plans, because federal law requires states to provide certain benefits through Medicaid. Even proponents of a no-strings-attached block grant recognize that in order for Texas to subsidize private coverage for Medicaid-eligible individuals without also providing “wraparound” benefits, the federal government would have to change the law or the state would have to require private insurers to cover everything that Medicaid offers.

Next week, Zerwas plans to offer a committee substitute for House Bill 3791, which would direct the Health and Human Services Commission to pursue negotiations with the feds to reform Medicaid and draw down expansion dollars. After the budget vote in the House, it is unclear how far Zerwas' legislation will go. Earlier in the week, Appropriations Chairman Jim Pitts, R-Waxahachie, said his committee could consider the legislation as soon as Thursday.

“The way that I’ve always looked at this... has always been about how do we leverage our position, in order to draw down the full amount of funding that the federal government has dedicated to the states,” Zerwas said.