Mike Kueber's Blog

December 23, 2010

Medicaid in Texas and the budget shortfall – should welfare consumption be encouraged?

States are beginning to realize that ObamaCare is not going to ameliorate their problems with financing medical care for the poor (Medicaid).  In fact, according to some the states’ already deteriorating situation will be greatly exacerbated by ObamaCare. 

Earlier this month the Texas Public Policy Foundation (TPPF) issued a report that describes the financial effect that ObamaCare will have on Texas state government during the next decade.  The TPPF is a self-described non-partisan research institute whose mission is “to promote and defend liberty, personal responsibility, and free enterprise in Texas.”  I don’t know about you, but that sounds pretty partisan to me.  Do you know any Democrat whose guiding principles are liberty, personal responsibility, and free enterprise?  (I would be interested in knowing what the Democratic guiding principles are.  I am adding that to my list of things to do.)

The TPPF notes that Medicaid was already in dire straits in Texas before ObamaCare:

  • “[E]ven if ObamaCare had not been enacted, projected growth in Texas’ Medicaid spending beyond 2014 would have been on a trajectory that appears to be unsustainable.”

ObamaCare will further exacerbate Texas’ problem with Medicaid financing because of three principal factors:

  1. Newly-eligible Texans.  ObamaCare expands tremendously the number of Texans who are eligible for Medicaid.  Currently, children and their parents are eligible if they earn less than 100% of the federal-poverty level (FPL); under ObamaCare, the threshold is increased to 138% of FPL and adults are eligible even if they don’t have children.  Historically, the federal government has picked up 60% Texas’ Medicaid costs.  Under ObamaCare, however, the fedgov will pick up 100% of the cost of these newly-eligibles for only three years, and then its contribution will decline to 93% by 2019.  Although ObamaCare is not clear with respect to post-2019 contributions, it is feared that it will drop to the historical rate of 60% by 2028.  (Under the Cornhusker Kickback, Nebraska would receive 100% reimbursement indefinitely, but public outrage resulted in the Kickback being removed by a reconciliation bill.)   
  2. Previously-eligible Texans.  Although the federal government will pick up 100% of the cost of Medicaid for newly-eligible Texans, Texas is responsible for its 60% share of the cost of Medicaid for previously-eligible Texans.  This distinction is significant because (a) the individual mandate under ObamaCare will cause a large number of Texans claim the Medicaid coverage for which they were already eligible, and (b) the Obama administration is planning to conduct “enrollment facilitation drives.”
  3. The Federal Medical Assistance Percentage (FMAP).  Based on the FMAP, the federal government pays for approximately 60% of Texas’ Medicaid costs.  Under the recent stimulus law, that percentage was increased temporarily to approximately 70%.  Because of the deficit/debt tsunami brewing in Washington, states like Texas are concerned that the fedgov will jigger the FMAP to reduce the federal contribution below 60%.

Even if the fedgov maintains the FMAP at its current rates, Texas will be faced with an unfunded mandate of $31-38 billion for the first decade of ObamaCare – 2014-23, depending on whether the FMAP for newly-eligible residents stays at 93% or gradually drops to 60%.  This mandate will consume over 80% of Texas’ projected revenue growth for the decade, with a result that other government responsibilities, such as education and law enforcement, will be shunted aside or taxes will need to be increased. 

The solution, according to Texas Public Policy Foundation, is for Congress to repeal ObamaCare or for Texas and other states to opt out of Medicaid.  It would be interesting to see what sort of medical care Texas could provide to its poor without the federal contribution of 60%.  Perhaps that can be the subject of the next TPPF paper. 

The TPPF might want to look at Bexar County, which currently makes welfare-type medical care (CareLink) available to all residents who earn as much as 300% of the federal poverty level.  I’m guessing that Bexar County has kept program costs low by not conducting any “membership facilitation drives.”  And sometimes I think welfare should work that way, although I have noticed recently that there have been big pushes to get more people signed up for food stamps.  It’s ironic that financially responsible state and local governments rarely encourage welfare participation, while the financially irrersponsible federal government often does.


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