Impact of Medicaid Expansion on State Budget Examined

As state legislators consider what “a Texas solution” to Medicaid expansion would look like, others have begun addressing the question of how Medicaid expansion would affect the state budget and local taxes.

With extra federal money coming in, Medicaid expansion could offset $1.2 billion in the 2014-15 biennium budget that Texas would spend on other health programs to cover poor populations, according to a report released Tuesday by Billy Hamilton, the state’s former budget estimator and former deputy comptroller. The report was commissioned by Texas Impact and the Methodist Healthcare Ministries of South Texas.

"The issue needs to be examined closely by the affected agencies," Hamilton said in a written statement. "The estimates are conservative but preliminary until we receive feedback from the agencies that that have access to much more detailed internal data and information concerning their programs and strategies." 

This chart looks at how Medicaid expansion could impact spending on certain state programs, based on Hamilton's report. The third column shows requested general revenue funds for the 2014-15 biennium, and the last column shows the amount that would be freed up by Medicaid expansion. 

The dominant fiscal argument for proponents of Medicaid expansion is that the program would reduce billions in uncompensated care costs shouldered by local government entities and public hospital districts. Spending on uncompensated care, the proponents say, raises private insurance premiums and local tax rates.

In response to those assertions, Sen. Charles Schwertner, R-Georgetown, has filed legislation, Senate Joint Resolution 61 and Senate Bill 1808, calling for a constitutional amendment to reduce local tax rates if Texas reaches an agreement to expand Medicaid and the program realizes cost savings.

"Ultimately, we're talking about our own federal tax dollars, taxes we already pay, that would be used to alleviate these expenses," Schwertner said in a statement. "If this is really about reducing costs and saving people money, then it makes absolutely no sense for Texans to be taxed twice for the same services. This legislation would protect Texans from double taxation.”

Hamilton estimates the Medicaid expansion would cost Texas $15 billion over 10 years, while allowing Texas to draw down $100 billion in federal financing. These Texas Tribune interactives show the economic impact of the Medicaid expansion by legislative district, and the effects on uncompensated care and the rate of uninsured by county, according to Hamilton’s estimates.

John Davidson, a health policy analyst at the conservative Texas Public Policy Foundation, said Friday at a legislative hearing that other states that extended Medicaid to adult populations did not see a reduction in uncompensated care costs.

“Property owners should not expect taxes from county hospital districts to go away if the state expands Medicaid,” Davidson said in an email, adding that the Affordable Care Act cuts billions in Medicaid and Medicare financing to hospitals to pay for provisions in the law and therefore, hospitals may continue to seek additional public financing for uncompensated care.

Although state Republican legislators have overwhelmingly rejected Medicaid expansion “in its current form” under the Affordable Care Act, they’ve begun negotiations on what Medicaid expansion would look like in Texas.

Rep. John Zerwas, R-Simonton, filed House Bill 3791 to grant the Health and Human Services Commission the authority to reach an agreement with the federal government to expand Medicaid, if certain parameters determined by the Legislature are met. Currently, the bill requires the agreement with the federal government to include cost-sharing measures, such as copayments, and allow Texas flexibility to tailor benefits offered by the Medicaid program. It also includes a severability clause to end the expansion program if the federal government reduces it share of financing.

The federal government would pay 100 percent of Medicaid expansion enrollees’ health care costs from 2014-16, and then, would pay a smaller percentage each year until the federal share reached 90 percent in 2020. Texas can opt in or out of Medicaid expansion at any point, but the 100 percent federal financing match is only available in 2014-16. Texas would also be required to pay half of the administrative costs, which the Legislative Budget Board estimates would cost the state $50 million in 2014.