Office of the Governor Rick Perry

Medicaid Reform

Summary of Achievement

In his 2007 State-of-the-State address, Governor Perry set forth his vision for reducing the number of uninsured Texans by restructuring federal Medicaid funding. His plan increased flexibility and optimized investments in health care by reducing the reliance on expensive emergency room visits for non-emergent care, and made it easier for the working poor to buy into employer-sponsored health coverage. Additionally, Governor Perry’s reform plan provided assistance for enrollment in private insurance and employer-sponsored plans, created tailored benefit packages for children with special health care needs, promoted consumer choice through health savings accounts and consumer directed services, rewarded healthy lifestyle behaviors with health care incentives, and set a cost-sharing base for non-emergency use of emergency departments.

The Challenge

The Medicaid program is a joint state-federal entitlement program designed to provide health care to eligible low income individuals. The Texas Medicaid program primarily serves low income children, pregnant women, elderly, and people with disabilities. Texas expenditures for Medicaid more than doubled between 1996 and 2006, and the program currently accounts for 26 percent of the Texas state budget.  Funding for Medicaid continues to compete with other critical programs and priorities, while increasing health care costs have eroded employer-based coverage. In addition to surging Medicaid caseloads and increasing medical costs, 25 percent, or 5.5 million people in Texas, do not have health insurance.  This places additional pressure on Medicaid.  Public hospitals report spending billions of dollars a year for care provided to the uninsured.

Action / Initiative

After Governor Perry’s 2007 State-of-the-State address, which set forth his vision for reducing the number of uninsured Texans, the 80th Legislature responded by passing Senate Bill 10, which incorporated Governor Perry’s Medicaid reform initiatives.  Senate Bill 10 required HHSC to: promote preventive care and reduce hospital care for non-emergent conditions; study the use of health savings accounts; design tailored benefit packages for certain Medicaid recipients to meet special health care needs more effectively; expand breast and cervical cancer treatment; and study premium assistance programs for small employer health benefit plans. The resulting Medicaid reform waiver was submitted to the Centers for Medicare and Medicaid Services (CMS) in April 2008 and is still pending federal approval.

The Outcome

While CMS has yet to approve the Texas waiver, the governor continues to push US Health and Human Services Secretary Sebelius to approve these state-specific, market- driven reforms.  Through the waiver, Texas proposes to create the Texas Health Opportunity Pool (HOP) trust fund by optimizing federal funding sources.  Through this fund, Texas will transform access to health care for the uninsured from a heavy reliance on hospital-based care to increased access to primary and preventive care.  Texas will provide HOP premium subsidies for uninsured adults and older children (age 19-20) living in households with family income at or below 200 percent of the federal poverty level (FPL)—approximately $41,300 for a family of four.  Under the HOP, all consumers will be required to pay something toward the cost of their health care. 

Consumers will have a choice among health care coverage options, placing an emphasis on consumer ownership of primary and preventive services. Parallel reform initiatives will address uncompensated care issues, including establishing financial incentives for hospitals to implement strategies to reduce uncompensated care costs. 

Through the governor’s leadership, the state is on track to achieve cost savings and cost avoidance, thanks to reform efforts that generate more rational health-care spending on the uninsured, decrease the number of uninsured Texans, improve access to individual and employer-sponsored health coverage, and increase overall system efficiency and effectiveness.