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About the Series
This state update is a product of Assessing the New Federalism, a multiyear project to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director. The project analyzes changes in income support, social services, and health programs. In collaboration with Child Trends, the project studies child and family well-being.
Recent Changes in Health Policy for Low-Income People received special funding from the Robert Wood Johnson Foundation as part of the Urban Institute's Assessing the New Federalism project. The project received additional financial support from The Annie E. Casey Foundation, the W. K. Kellogg Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The David and Lucile Packard Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, the McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, the Fund for New Jersey, The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation.
This state update was prepared for the Assessing the New Federalism project. The views expressed are those of the authors and do not necessarily reflect those of the Urban Institute, its board, its sponsors, or other authors in the series.
Overview
Texas is a large, diverse state with a substantial low-income population, high levels of uninsurance, and many foreign-born residents, largely from Mexico. Politically, it is very conservative, with minimal health and welfare programs beyond what is required to draw down a federal match. Taxes are low, limiting the funds that are available for health and human service programs. Cash welfare is highly unpopular, but health care is viewed more favorably.
Political and Budgetary Developments
Texas has new political leadership and is facing a very different fiscal environment than it had during the late 1990s. With the elevation of Governor George W. Bush to president of the United States, the new governor is Rick Perry, a conservative Republican, whose main interests lie outside of health care. Although the state was booming in the late 1990s, the economy deteriorated in 2001, turning a modest surplus into a substantial budget deficit. Despite this, the two-year budget passed by the legislature in the spring included several health care initiatives, including Medicaid eligibility simplification for children, funding for the State Children's Health Insurance Program (SCHIP), increased reimbursement for nursing homes, and establishment of a new system of health insurance for public school teachers and a pharmaceutical assistance program for older people and persons with disabilities (although funding was not provided). To offset some of these increases, the legislature required the Health and Human Services Commission to find Medicaid expenditure cuts and put off one month of Medicaid funding into the next biennium. The declining economy, which has been exacerbated by the terrorist attacks of September 11, may curtail further expansions and may force reevaluation of the ones enacted in 2001. However, as of January 2002, no major revenue shortfalls or large expenditure overruns are occurring, although both Medicaid and SCHIP are under budget pressure.
Major State-Funded Health Programs for Low-Income People
Texas has one of the highest rates of uninsurance in the country, partly due to a low rate of private insurance coverage, leaving the state with a large gap to fill with public programs. The Texas Medicaid program is fairly limited in terms of covered services and eligibility for nondisabled adults. Due to the strong economy and welfare reform, Medicaid enrollment fell during the late 1990s, especially for nondisabled adults, although it is rising again and is projected to continue to increase for the next several years. There is strong upward pressure on the Medicaid budget due to increasing enrollment, prescription drug costs, and provider efforts to increase payment rates. A major concern is the very large number of children who are eligible for Medicaid but are not enrolled. In 2001, the legislature enacted an initiative to address this issue by funding outreach and simplifying the application process. The state is not actively pursuing Medicaid options to expand eligibility for adults. The legislature did pass a bill in 2001 that would have sought federal waivers for a major expansion of eligibility for adults using local funds as the federal match, but the governor vetoed this bill. Smaller demonstrations are being explored.
The Texas SCHIP program took a while to get started but now has enrolled over 400,000 children and is projected to continue to grow. The program is politically popular, and the success of SCHIP inspired the Medicaid eligibility changes for children that were enacted in 2001. The SCHIP application process is simple and the state has invested in outreach. SCHIP eligibility is up to 200 percent of the federal poverty level (FPL). Although there is a small Medicaid expansion component, Texas SCHIP is mostly a separate insurance program using managed care organizations. In part because there are so many uninsured children in the state, Texas has not pursued using SCHIP funds to provide health insurance for adults. The state anticipates using all of its federal SCHIP allotment on children. Substantial rate increases for managed care plans in October 2001 exacerbated some underfunding of the program, leading state officials to consider options to limit enrollment increases.
Acute Care Issues for the Low-Income Population
Texas Medicaid and SCHIP depend heavily on managed care for children and nondisabled adults. Medicaid managed care is in all of the major urban areas, and all SCHIP enrollees are in some form of managed care. Although older people and people with disabilities are not required to join managed care organizations, the state is operating an innovative demonstration in Houston that integrates some acute and long-term care services. State officials believe that managed care has the potential to provide a "medical home" for enrollees, improve quality, and contain costs. Many providers, however, dislike health maintenance organizations (HMOs) and find them to be administratively complicated and burdensome. Medicaid has primarily contracted with commercial HMOs, and while there have been some health plan withdrawals, they have largely been limited to specific markets. Responding to concerns by consumers and providers, the legislature imposed a moratorium on expansion of Medicaid managed care in 1999, which has now been lifted. Despite the ambivalence in the legislature about managed care and the outright opposition by some providers, the 2001 budget includes expansion as one possible strategy for saving money.
Overall, commercial managed care has had a difficult time in Texas, with many HMOs losing money throughout much of the 1990s, leading to some mergers and consolidations. Texas has been a leader in state regulation of HMOs, with laws providing a patients' bill of rights that includes the ability to sue HMOs.
A major source of health care for the low-income population in major metropolitan areas in Texas is public hospitals, which compensate in part for the low Medicaid eligibility levels for adults. While mostly supported by local property tax assessments, hospitals providing health care to the Medicaid and uninsured populations benefit from the Medicaid Disproportionate Share Hospital (DSH) payment adjustment. Expenditures for these payments accounted for about 14 percent of total Medicaid spending in 1998. While federal law has mandated some cuts, the program has not changed much in recent years. In late 2001, the state proposed to pursue similar strategies—supplemental payments—which are designed to provide facilities with higher-than-normal Medicaid rates, using intergovernmental transfers from large public hospitals as the state match.
The costs of prescription drugs have been increasing for both Medicaid and consumers. In 2001, the state created a limited prescription drug program for low-income elderly and disabled persons, established a discount retail program, and created a bulk purchasing arrangement for state programs. No funding, however, was provided for the prescription drug benefit or the bulk purchasing program.
Long-Term Care
Long-term care, especially nursing home care, is under substantial pressure in Texas. Nursing homes and noninstitutional providers have been affected by a shortage of workers. The state has historically set low levels of Medicaid reimbursement for nursing homes, and the changes to Medicare skilled nursing facility reimbursement enacted as part of the federal Balanced Budget Act of 1997 adversely affected many facilities. In addition, liability insurance costs have skyrocketed, and many facilities have dropped coverage. The nursing home industry contends that the cost pressures make it difficult for them to provide high-quality care. The 2001 legislature partially addressed these issues with a significant rate increase (although only a third of what the industry requested) and with a modest initiative to allow for-profit nursing homes to participate in the state-run high-risk medical liability pool.
Through its Medicaid program, Texas provides a range of home and community-based services, although there are large waiting lists for optional Medicaid waiver services. The state responded to the Supreme Court's Olmstead decision, which established a limited right to home- and community-based services, by actively engaging in a planning process to expand services. The changes to the Medicare home health reimbursement system that were part of the Balanced Budget Act of 1997 adversely affected Texas home health agencies.
Other Issues
Texas policymakers have recently addressed three other health care issues. First, in a highly controversial opinion, the state's attorney general argued that the provision of nonemergency health services to undocumented immigrants is illegal under federal law without explicit new authorization, which he contended has not occurred in Texas. Public hospitals and consumer advocates strongly dissented from this interpretation of federal law. Second, the state has started an initiative to improve health and human services in the colonias, which are areas without basic infrastructure, such as potable water or sewage systems. Third, not all public school teachers in Texas have access to employer-sponsored health insurance, a problem addressed by the legislature in 2001.
The past five years have given states new opportunities in health policy for low-income people but also put new pressures on policy formulation. Many developments increased state flexibility, including welfare reform and delinking of Medicaid from cash assistance, new funding for children's health insurance through SCHIP, repeal of federal minimum standards for nursing home and hospital reimbursement, and increased federal willingness to grant waivers under Medicaid (and now under SCHIP as well). Fiscal capacity also rose—from booming revenues during the long economic expansion of the 1990s and from new tobacco settlement funds.
However, new pressures on revenues and state policy arose from recent federal economizing under Medicaid and Medicare, notably including cuts in safety net support believed to be abused by some states; political pressures for state tax cuts; and, starting in 2001, an economic slowdown and fears of recession. The tragedies of September 11, 2001, have accelerated the downturn in the economy that was beginning to affect Texas. The deterioration in the economy will likely accelerate the fiscal problems and may increase the budget pressure on Medicaid and other health programs for the low-income population. Beyond the economy and potentially shifting priorities, political demands to provide coverage for the uninsured, the Supreme Court's Olmstead decision, rapid growth in pharmaceutical spending, and the difficulties faced by Medicaid managed care provided additional spending pressure.
To examine how states have responded to both federal constraints and state flexibility during the past half decade, this study of Texas—along with concurrent studies of 12 other states—examines state priority setting and program operations in health policy affecting the low-income population.1 This report focuses on developments in health care policy in Texas beginning in the late 1990s through 2001, building on an earlier baseline study.2 Information for this study was obtained from publicly available documents, newspapers, and Web sites and from interviews with state officials, provider organizations, consumer advocates, and other stakeholders. The authors conducted in-person interviews in Austin, Texas, in March 2001. Questions were asked using an open-ended interview protocol. To encourage the respondents to speak freely, they were told that they would not be quoted by name.
Notes from this section of the report
1. The other 12 states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Washington, and Wisconsin. The 13 states studied were selected to present a balanced view of state activity and its impact on low-income families. See Kondratas, Anna, Alan Weil, and Naomi Goldstein. 1998. "Assessing the New Federalism: An Introduction." Health Affairs 17(3): 17-24.
2. The prior study was based on interviews conducted during two site visits to Texas in 1996 and 1997 and subsequent telephone interviews. See Wiener, Joshua M., Alison Evans, Crystal Kuntz, and Margaret Sulvetta. 1997. Health Policy for Low-Income People in Texas. Washington, D.C.: The Urban Institute. Assessing the New Federalism.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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