Medicaid Withdrawal Idea Gets Spiked

Report downplays Medicaid opt out, favors 'market' reforms


Dave Mann

It’s official: Withdrawing from Medicaid would be a disaster for Texas. That’s the take-home message from a much-anticipated state report released today.

A few conservative Republicans—mostly Gov. Rick Perry and state Rep. Warren Chisum—have broached the idea of Texas opting out of Medicaid to help solve the state’s budget gap. Their comments had given political weight to a previously little-known joint study by the Health and Human Services Commission and the Department of Insurance examining the consequences of Texas losing Medicaid funding.

The report’s conclusions leave little doubt that Medicaid withdrawal would harm the state economically; deprive poor, elderly and disabled people of access to health care; likely raise property taxes; rob the state of tax revenue; and lead to increases in insurance premiums.

None of those conclusions are surprising. We’ve previously written about the potentially devastating consequences of Medicaid withdrawal. It never seemed a viable option for solving the state’s budget problems.

What I do find surprising is how stridently the report endorses certain Medicaid reforms. When it discusses Medicaid reform, the report reads like a product from a conservative think-tank.

It discusses the need for a “market-oriented” reform that would convert Medicaid funding to block grants and provide states wide latitude to spend federal money as it sees fit. That could include funneling Medicaid money into private savings accounts that individuals could use to purchase coverage from private insurers on the open market. I don’t know if that kind of market-based system would spend Medicaid money more efficiently, as the report claims. What I do know is that semi-privatized approach would funnel billions of dollars in Medicaid money to the insurance industry. (More on that proposal below.)

The report’s suggestions also happen to jibe with the Medicaid reforms that Gov. Perry has been promoting—that is when he hasn’t been talking about Medicaid withdrawal.

Here’s the statement Perry’s office released this afternoon about the Medicaid report:

“The current Medicaid system is financially unsustainable for states and the federal government, as costs increase about nine percent per year in Texas alone. Without greater flexibility and the elimination of federal strings, Medicaid will strangle state budgets and taxpayers as Obamacare and other programs expand Medicaid rolls.

“Texas, the states and the federal government would be much better served by increasing flexibility and innovation in Medicaid, even block granting funds to the states, so we can tailor Medicaid dollars to best serve the needs of Texas patients, families and taxpayers. I have discussed these issues with other governors and policy experts, and will be working on ways to improve the utilization of Medicaid dollars in Texas.”

What you’ll notice about Perry’s statement is that it doesn’t mention withdrawing from Medicaid at all. What it does endorse is “greater flexibility and elimination of federal strings” and “block granting” Medicaid funds to the states.

 The more you read the report and Perry’s statement, the more it seems the idea of Medicaid withdrawal was perhaps never a serious proposal. Perry may have floated the idea as a way to further these preferred “market-oriented” reforms of Medicaid.

As for Medicaid withdrawal, the numbers aren’t pretty. The report’s headline conclusion is that Medicaid withdrawal could result in 2.6 million Texans becoming uninsured.

Texas would surrender $15 billion in federal matching funds. “At the same time, Texas residents and businesses would continue to pay federal axes in support of other states’ Medicaid spending,” the report states.

Meanwhile, the spike in Texas’ uninsured population would also swamp the state’s hospitals in billions worth of uncompensated care. That would hike local property taxes.

We’d collectively pay higher taxes and higher insurance premiums and receive fewer benefits in return, while seeing kids, new mothers and the elderly kicked off services. Doesn’t sound like much fun.

But the report also highlights the rising costs of Medicaid—with booming caseloads leading to a 170-percent increase in Texas’ spending on Medicaid the past 11 years.

 So something has to be done: “Without significant reform at the federal level, states are left facing a no-win dilemma. Opting out of Medicaid means giving up federal tax dollars paid by the state’s residents to provide health care for our most vulnerable residents. Staying in the program forces states to pay for a federally-mandated expansion of Medicaid with little control over the program’s ever-rising costs, exacerbating an already unsound financial situation.”

 What’s surprising is how stridently the report discusses possible solutions to this “no-win” scenario.

The report concludes that the federal government should allow the state to “incorporate market oriented principles and greater accountability into the Texas Medicaid program.

“Under one waiver proposal, the state would establish consumer-directed medical accounts with sufficient funding to allow a client to purchase an individual or family high-deductible private insurance policy and fund a related health savings account.

“The proposal would empower Medicaid recipients to use health saving accounts for out of pocket health care expenses, job training, child care, or other qualifying purchases.”

This would represent a fundamental shift in how Medicaid functions. In the current model, the government reimburses doctors and other providers for the health care services they offer Medicaid patients.

Under the Perry plan, the government would fork over Medicaid money directly to individuals who would then shop for and purchase a private insurance plan. Instead of one money transfer (government to health care providers), we would have three (government to patient to insurance company to providers). Perry and the report authors pitch the latter system as more efficient, despite the added bureaucracy that would no doubt come along with these added transactions.

I don’t know if it would be more efficient. But it certainly would be a boon for the insurance industry and whatever financial institution would maintain these health savings accounts.

Still, the report’s recommendations are rather fantastic at the moment. The federal government determines how the Medicaid program operates. And it seems doubtful the Obama administration will allow Texas to implement these reforms.

 So until a Republican wins the White House (and perhaps that will be Perry), these Medicaid reforms (and Medicaid withdrawal) are likely nonstarters.