If Texas wants to keep receiving billions of federal dollars to help hospitals care for uninsured patients, state lawmakers may have to look again at expanding Medicaid coverage for impoverished adults, some political observers say.

That’s because in 2016, Texas will have to ask the federal Centers for Medicare and Medicaid Services to renew a five-year waiver to pump $29 billion into state health care coffers.

Since landing its first such waiver in 2011, Texas leaders have defiantly refused to expand Medicaid as envisioned under the Affordable Care Act, leaving more than 1 million impoverished Texans with no health insurance.

With the waiver renewal nigh, observers said, there’s some expectation that the federal agency will hold the waiver approval hostage in exchange for Medicaid expansion.

“CMS is going to hold that over Texas’ head to say, ‘You want this money? You do the expansion,’” said Matt Salo, executive director of the National Association of Medicaid Directors. “It’s one of the points of leverage that CMS now has.”

Texas received the 2011 Medicaid waiver in part to reimburse hospitals for care provided to patients who couldn’t pay. Two years later, state leaders under Gov. Rick Perry declined to expand Medicaid, criticizing the program as inefficient.

That left a “coverage gap” of more than 1 million Texans too poor to receive federal subsidies for private health insurance but too rich to qualify for coverage under Texas’ current, restrictive Medicaid requirements.

Now, policy analysts on the left and right say, the feds are likely to be less sympathetic to Texas’ request for another waiver to help pay for uncompensated care.

A similar tug-of-war is playing out in Florida, said Joan Alker, executive director at the Center for Children and Families at Georgetown University. In May, the federal government renewed Florida’s waiver to reimburse hospitals for just one year, rather than the standard three, “which was very unusual,” Alker said.

“To me, that was a clear signal that they were saying, ‘We’re not going to give you this money forever because these Medicaid expansion dollars are on the table, and you’re not taking them,’” she said. “Why would you take one pot of federal money and not the other one, which is actually a better deal for the state?”

Texas’ Legislature has only moved farther to the right since its 2013 battle over Medicaid expansion, and lawmakers are unlikely to budge. State Sen. Charles Schwertner, R-Georgetown, the chairman of the Health and Human Services Committee, has said alternative programs to expand coverage merit “honest discussion,” but that “expanding Medicaid in its current form is a nonstarter for Texas.”

John Davidson of the Texas Public Policy Foundation, a conservative think tank, agreed.

“If you expand Medicaid without significantly reforming it, you will break the program,” Davidson said. But he expects the federal government to use the waiver renewal to try to force Medicaid expansion, because “it would be a feather in the administration’s cap to see that happen here because Texas is such a large state.”

Representatives for the Centers for Medicare and Medicaid Services did not respond to a request for comment.

In Texas, Medicaid covers 3.7 million poor, disabled and elderly people, including children, and costs roughly $40 billion per year, of which the federal government pays 60 percent.

More than 700,000 Texans signed up for health insurance on the federal exchange in 2013, the most of any state. That figure paled in comparison to the more than 6 million Texans who lacked health insurance in 2012, as tallied by the U.S. census. By not expanding Medicaid, Texas is forgoing as much as $8 billion in federal assistance each year, according to the left-leaning Center for Public Policy Priorities.

Republican lawmakers considered an alternative “Texas solution” to Medicaid expansion during the 2013 legislative session that would have drastically reformed the program. That proposal failed, and ultimately the Legislature approved a requirement that the Health and Human Services Commission receive legislative approval before expanding Medicaid eligibility.

State Rep. John Zerwas, R-Richmond, one of the lawmakers who advocated for the “Texas solution,” said the Legislature would revisit coverage expansion during the session.

“It still behooves us as a Legislature to figure out, what’s the policy going to be around these people?” he said. “I’ll be the first to say that finding a solution for these million and a half people is important.”

And the transformational waiver from 2011 is already a source of some conflict with the federal government. CMS is currently withholding $75 million in waiver money that Texas used to reimburse private hospitals while federal officials review whether any rules were broken.  

Tiffany Hogue, policy director for the Texas Organizing Project, which has worked to get Texans to sign up for health coverage on the exchange, said Medicaid expansion would be a top priority for her group during the legislative session.

“It’s absolutely going to be a battle cry for us,” she said. “The sheer number of uninsured — that’s daunting.”

Still, Alker said she was skeptical that Texas would expand Medicaid anytime soon.

“I remind myself when the Children’s Health Insurance Program was passed in 1997, Texas was the last state in the country to pick up the program,” she said. “That may be instructive moving forward.” 

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.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.