The Medicaid Withdrawal Myth

Ditching Medicaid wouldn't make for good politics or good policy


Dave Mann

This story was co-written by Dave Mann & Abby Rapoport.

After The Texas Tribune reported Sunday that Texas legislators were considering withdrawing from Medicaid, it didn’t take long for other commentators to start foaming at the mouth. Over at The Guardian, Michael Tomasky predicted: “I see little reason to think Texas won’t do this eventually. It saves billions; it’s a way to confront Obamacare; and after all, poor people vote Democratic, when they vote, and Texas is run by Republicans.” Suzy Khimm, writing on The Washington Post‘s site, took it a step further: “Conservative state lawmakers are now demanding that the state drop out of the program altogether to alleviate the state’s $25 billion shortfall.”

Somehow no one bothered to ask whether a Medicaid withdrawal is a tenable policy solution or politically feasible—or whether it’s being seriously considered (or is just the ramblings of a handful of right-wing lawmakers). Details, details.

After a GOP-dominated election like the one we saw last week, red meat is on the legislative menu, and eliminating a benefit program like Medicaid makes for great politics in some ways. But The Tribune story offered little evidence that Texas lawmakers were seriously considering a withdrawal from Medicaid. The story included a single quote from state Rep. Warren Chisum, a hard-line conservative from the Panhandle town of Pampa currently running for speaker of the House. “This system is bankrupting our state,” The Tribune quotes Chisum. “We need to get out of it. And with the budget shortfall we’re anticipating, we may have to act this year.”

But that’s not all that Chisum has said. Patti Hart, blogging at Texas Monthly, recently reported that Chisum raised the issue of withdrawing from Medicaid at a recent press conference. Disposing of Medicaid would save the state billions in upfront costs and help close the looming budget gap now estimated to be between $18 billion and $25 billion. But, as Hart reported, even Chisum noted at his press conference he’s not against all government health insurance programs and that “we can’t just walk away” from the Texans’ health-care needs.

In fact, it would be downright impossible for the state to maintain the same level of health-care services without federal Medicaid dollars. About 60 percent of the Medicaid program, which provides a wide range of health-care services to low-income families, is paid for with federal matching funds. The State of Texas pays for only about 39 percent of the program. The services go to a large population, including 70 percent of nursing home patients and 100 percent of disabled Texans living in residential centers. Medicaid pays for 55 percent of all births in Texas and for the health insurance for more than 2.3 million Texas children.

Losing Medicaid would likely cost taxpayers more money in the end. Texans would continue to pay for Medicaid through their federal taxes, but would cease to see any benefit. Meanwhile, the increase in the uninsured population would cause Texans to likely pay more money in private insurance premiums and local property taxes.

“Our entire health-care systems are badly strained in Texas already because more than one in four Texans is uninsured,” said Anne Dunkelberg of the nonprofit think-tank Center for Public Policy Priorities. The average family in Texas already pays $1,500 extra for family insurance coverage to pay for the uninsured.

If Texas did pull out of Medicaid, it would also damage the state’s economy. In 2010, Texas received $21.7 billion in federal matching funds for health and human services, mostly to pay for Medicaid and the Children’s Health Insurance Program, according to a recent report from the Comptroller’s office.

Each one of those federal dollars—which go to doctor’s offices, nursing homes, hospitals and pharmacies—boosts the state’s economy. It’s possible that doctor offices and pharmacies that rely heavily on Medicaid patients would simply go out of business. Economist Ray Perryman estimates that for every federal dollar spent on Texas Medicaid, the state gets $3.25 worth of near-term economic activity. So withdrawing from Medicaid would not only cost the state about $20 billion a year in federal money, but the Texas economy would lose about $60 billion a year.

“It would be a disaster,” said Dr. Susan Bailey, president of the Texas Medical Association, “for our patients, for the medical community, for emergency rooms.” Bailey explained that Medicaid patients already face a lack of access to physicians and too often rely on emergency rooms for basic health care—the least cost-effective measure. Withdrawing from Medicaid “would be to make the program even more expensive.” These aren’t just words—TMA is a major political player that endorsed Gov. Rick Perry for reelection.

Losing TMA’s support wouldn’t be the only political risk if lawmakers withdrew from the program. The two groups of people who benefit most from Medicaid are also the two groups of people that most politicians don’t want to harm—elderly people in nursing homes and children. Withdrawing from Medicaid and the Children’s Health Insurance Program would deprive nearly three million children of health insurance and likely would make for some pretty effective negative political ads.

Republican state Rep. John Zerwas pointed to lessons learned in 2003, when the Legislature faced a budget crisis and cut access to the Children’s Health Insurance Program (CHIP). More than 200,000 kids lost health insurance, and several Republican lawmakers later lost elections over the issue. “I’m a big believer that children [who] had health insurance whether through CHIP or otherwise are more likely to access health care in the more cost effective ways,” he said.

Zerwas may be partially responsible for accidentally starting talk of a Medicaid withdrawal. Last session, he initiated a study to see what Texas would do to provide for health care if the federal government took away the state’s funding for the Medicaid program. At the time, Zerwas worried the state couldn’t comply with the new national health care reform law, which will require Texas to soon expand its Medicaid eligibility and the number of people in the program. What if Texas couldn’t do it and the federal government withdrew all its Medicaid funding, Zerwas wondered. He commissioned a study to see what alternatives the state might have. Now some lawmakers have cast the same study, due out soon, as a method to withdraw from the program.

Zerwas acknowledges the shift. “It was originally meant to look at what would be the economic and human repercussions if feds ratcheted back matching,” the Simonton Republican explains. Zerwas heads the House Appropriations sub-committee on Health and Human Services, and in past years has played a major role in decisions around health care. He took a measured approach to the proposed withdrawal from Medicaid, saying he saw both concerns for human welfare and concerns about overall costs of the program to the state. Despite his support for CHIP eligibility, he said withdrawing from Medicaid would likely get a “very serious look,” though he did not commit to supporting it.

In all, the consequences of withdrawing from Medicaid and CHIP seem like a tough deal for everyone: More than $20 billion in lost federal money, $60 billion in lost economic activity, lost jobs from likely closures of some doctors’ offices, increased costs on municipal hospital districts and local taxpayers, and Texas legislators trying to explain to their constituents why millions children and nursing home residents don’t have services anymore.

Dunkelberg hopes that withdrawing isn’t a serious proposition. “The notion of just disbanding Medicaid,” she said. “You can’t imagine it being anything short of chaos.”