Feds aren't telling the truth about Medicaid funds

Photo by Todd Wiseman

In an effort to force Texas to expand Medicaid under the Affordable Care Act, the Obama administration is threatening to withhold billions in federal funds for a Medicaid waiver that provides supplemental funding to hospitals treating Medicaid patients.

The waiver, officially called the 1115 Transformation Waiver, was approved in 2011, expires in 2016 and is worth an estimated $29 billion. State officials have said losing these funds would cause an “upheaval” in Texas’ health care safety net, and House lawmakers recently met to discuss the implications for Texas hospitals if the waiver isn’t renewed.

The administration says that state lawmakers should just expand Medicaid because it would accomplish the same thing as the waiver by reducing the number of uninsured and therefore eliminate the need for uncompensated care payments to Texas hospitals.

But in reality, Medicaid expansion and the Medicaid waiver serve two very different populations. The administration is conflating them in an effort to coerce state lawmakers into implementing the ACA Medicaid expansion against their better judgment — and against voters’ wishes.

A cursory review of the history of Medicaid funding in Texas reveals the administration’s claims to be false. The waiver was meant to replace supplemental payments to hospitals calculated as part of the old fee-for-service Medicaid system. When Texas began transitioning to Medicaid managed care, the state sought a way to keep those federal funds. Because federal regulations prohibit such payments under a managed care system, state health officials applied for a waiver that would preserve the funding through a new mechanism, the 1115 waiver.

The details of the waiver program, like everything else about Medicaid, are extremely complex. But the important detail, which the Obama administration is attempting to hide, is that for the most part the two funding streams — the waiver and Medicaid expansion — cover two different groups of people.

Medicaid expansion in Texas would fund coverage for able-bodied, childless adults earning less than 138 percent of the federal poverty level. In other words, expansion under the ACA is a broad-based health care entitlement for a population that has never before been covered by the state’s Medicaid program.

The waiver, by contrast, serves those who are already on Medicaid. It supplements Medicaid payments to hospitals and other providers that care for the current Medicaid population: low-income seniors, pregnant women, children and people with disabilities. Hospitals typically get reimbursed at a lower rate for Medicaid patients than they do for Medicare. The waiver boosts those payments and covers more of the providers’ cost of treating Medicaid patients.

These so-called supplemental payments are significant, running into the billions, but their purpose is to pay for care for our most vulnerable residents. That’s not the purpose of Medicaid expansion, which covers a different group of people. Hospitals do incur some uncompensated care costs for treating those who might otherwise be covered under Medicaid expansion, but that’s not the purpose of the 1115 waiver federal officials are now trying to hold hostage.

The same thing is happening in Florida, where Gov. Rick Scott late last month sued the federal government over plans to withhold more than $1 billion in Medicaid funds connected to a similar waiver program. The Obama administration has threatened to do the same in seven other states in addition to Florida and Texas. Some of those states have also refused to expand Medicaid under the ACA.

We’ve been down this road before. In 2012, the Supreme Court ruled that Congress cannot make pre-existing Medicaid funds contingent on expansion of Medicaid under the federal health care law. Chief Justice John Roberts called it a “gun to the head” that violated the constitutional principle of federalism.

Yet that’s precisely what the White House is trying to do by threatening not to renew Texas’ Medicaid waiver. Lawmakers have valid concerns about losing the waiver, just as they have serious qualms about Medicaid expansion. Yet dismissing opposition to Medicaid expansion as merely “political” has now become routine, even here in Texas.

But the reasons state lawmakers should continue to reject Medicaid expansion aren’t just political; they have much more to do with the real-world policy implications of expansion under the ACA, which would expose Texas taxpayers to a massive new health care entitlement for able-bodied adults and strain the capacities of a program meant to serve the most vulnerable.

Make no mistake: The waiver in question is designed to improve the quality of health care provided to those currently on Medicaid by boosting payments for their care to Texas health care providers. Expanding Medicaid under the ACA won’t help those people, and would likely strain an already unstable program. Texas lawmakers should resist the strong-arm tactics of the White House and insist on renewal of the 1115 waiver for the sake of those Texans who now rely on Medicaid.

Disclosure: The Texas Public Policy Foundation is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

John Davidson

Senior health care policy analyst at the Texas Public Policy Foundation

@johnddavidson

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