Texas hospitals want Medicaid/SCHIP funds restored
Texas hospitals say funding cuts for the state’s Medicaid and SCHIP programs are shortsighted and counterproductive public policy given the current national framework for indigent care. The Texas Hospital Association released a study by economist Ray Perryman that calculates the economic impact of Medicaid and SCHIP cuts made in 2003 when the Texas Legislature faced a $10 billion shortfall.
According to Mr. Perryman, "For every dollar saved through cuts, far more is lost in federal funding, insurance premiums, and other associated costs. Although the program cuts and provider payment reductions implemented by the Texas Legislature in 2003 gave the illusion of improving the state budget, they did not do anything to reduce the underlying need for care.
"Instead, the burden was merely shifted from the state to local governments, hospitals, and the people of Texas. Moreover, without an adequate program for preventive care, the ultimate costs of treatment can escalate as minor medical issues become larger problems," he explained.
Losing federal money
One key issue is that federal dollars are lost as state funding is reduced. In 2004, the federal matching assistance percentage (FMAP) for Texas was 63.17%, meaning that for every $1 of state expenditures, more than $1.50 in federal funds were received. And for SCHIP, each state dollar is matched by about $2.60 in federal funds.
Mr. Perryman said the health care industry is crucial to the state’s economy, representing 15% of overall state output, 16.5% of earned personal income, and 17.2% of all employment. The medical sector and association spinoff production also yield $6.6 billion in annual state revenues.
Health sector big in economy
Within the health care sector, the impact of hospital facilities on the Texas economy is enormous, he says, supporting almost 700,000 permanent jobs in the state and nearly $87.5 billion in economic activity every year. Those benefits span virtually all production categories within Texas, as hospitals and their employees spend billions of dollars on various goods and services. Hospitals also are responsible for some $2.2 billion in annual state revenues.
According to Mr. Perryman’s analysis, measured on a dynamic basis, every dollar in net cuts in state Medicaid and SCHIP funding results in these losses:
- $2.32 in lost federal health care funding;
- $3.66 in total health care funding losses;
- $13.18 in total expenditure losses;
- $6.92 in gross state product losses;
- $4.80 in personal income losses;
- $2.88 in consumer spending losses;
- $1.81 in retail sale losses;
- $1.59 in increased insurance premiums;
- 58 cents in government cost increases and revenue losses;
- $1.52 in out-of-pocket and other private health care costs.
While access to health care is a problem across the United States, the report says the situation is even more difficult in Texas, which has the highest percentage of uninsured residents younger than 65 of any state.
"The state continues to struggle to accommodate the medical needs of its residents within the context of a constitutional mandate for a balanced budget and a strong political stance opposing the imposition of tax increases," Mr. Perryman wrote. "And demographic trends are likely to further increase demand for health care, as well as place greater pressure on the public payment mechanism."
Almost 25% of Texas counties (63 of 254) do not have an acute care hospital, and almost half the counties (123 of 254) have only one. Not only is Texas facing higher demand and utilization, but also a growing population in high-use groups and a large pool of uninsured. And as more people become uninsured, the increase in hospital emergency department utilization as a point of entry to the health care system also becomes a source of serious concern.
Medicaid costs likely to double
The report projects that direct Medicaid costs will likely nearly double within the next three years. More than $17 billion was spent for Medicaid in FY 2004, providing coverage for 3 million Texans.
Texas hospitals provide $7.7 billion in charity and other uncompensated care each year. Given rising costs of inputs, these outlays strain many facilities’ ability to remain financially viable, Mr. Perryman noted. "It is doubtful that hospitals could absorb a significant additional amount of unreimbursed care. Without adequate funding for Medicaid, it will be very difficult for millions of Texans to obtain even the most basic care."
He explained that at one point, nearly 500,000 Texas children were receiving regular checkups for health reasons ranging from well-child visits to dental care through SCHIP. But during the severe fiscal shortfall confronting the two-year budget cycle in 2003, SCHIP was one of the programs hardest hit by budget cuts.
Children losing SCHIP coverage
As benefits were reduced and eligibility requirements became more stringent, many children were dropped from the SCHIP program. Many families were forced to make difficult decisions between medical care for their children and other basic necessities such as food and housing, Mr. Perryman wrote.
One outcome from this situation was that parents of underinsured and uninsured children had to resort to using local emergency departments to receive preventive health care. They now face further major medical and financial crises, he added, as uninsured children are five times more likely than not to rely on an emergency department as their sole source of health care.
Mr. Perryman pointed out that an argument has been put forth that Texas Medicaid spending increases over the years have demonstrated little to no impact on the percentage of the population that is uninsured.
"The implication is that spending is having no real effect on the health insurance difficulties many Texans are facing," he explained. "However, this notion fails to incorporate consideration of the situation that would be faced if Medicaid spending had not increased — almost assuredly a growing population of uninsured and an even more embattled health care system.
"Moreover, any analysis confined to the years of poor economic performance [generally 2001 to 2003] is likely to overstate the case for future growth in the number of uninsured. As the economy recovers, many families will once again enter the ranks of the insured, either through an increased ability to afford private insurance or by obtaining a job with better health care benefits. Economic growth is essential to reducing demand for Medicaid and SCHIP," Mr. Perryman continued.
Medicaid and SCHIP key
The report said that Texas’ Medicaid and SCHIP programs are the state’s largest outlays for public health care and preventable health maintenance for indigent and low-income individuals. The two programs together are the key vehicle for funding health coverage for those who would otherwise be unable to afford it. Payments to hospitals, clinics, physicians, and other providers fund care that would otherwise be difficult, if not impossible, to obtain. And while it certainly is not the primary purpose, substantial business activity is generated by the care delivered through the two initiatives.
"Obviously, a lack of full funding for the Texas Medicaid and SCHIP plans result in a hefty blow to the health services sector as well as all the families who rely on Medicaid and SCHIP as a solution for the rising costs of health care," Mr. Perryman explained.
"Although some of the funding reductions and shortfalls in these programs have been restored, the losses are nonetheless critical to the health care complex and aggregate economic performance.
"The total net reduction after all adjustments is approximately $2.340 billion over the 2004-2005 biennium, as compared to the funding levels required to maintain the programs as they were prior to the modifications in 2003," he added.
"Approximately $1.481 billion of this amount represents foregone federal revenues. Moreover, Texas hospitals suffer a dynamic revenue loss of $830.7 million over the biennium. This withdrawal from the acute care complex represents a serious blow to the viability of these facilities and their capacity to serve as a primary safety net in the health care complex. The state also suffers a dynamic fiscal reduction of $218.8 million over the biennium," Mr. Perryman noted.
"Texas hospitals could not agree more with the conclusions reached by Dr. Perryman," said Dan Stultz, chairman of the Texas Hospital Association board. "The cuts made in 2003 have resulted in more uninsured Texans — particularly children — more emergency department visits, higher local taxes to support hospital districts, and higher premiums for those fortunate enough to be able to buy private insurance," he added.
"Texas hospitals ask the legislature to restore Medicaid and SCHIP funding to 2003 levels and to budget for realistic caseloads and projected utilization of services for the 2006-07 biennium," Mr. Stultz added. "Hospitals want to keep their promise of meeting the health care needs of their communities, and we need the Texas Legislature’s help with adequate funding for Medicaid and SCHIP," he concluded.
[To download the Perryman Group report, go to www.thaonline.org/Advocacy/Perryman. Contact Mr. Perryman at (254) 751-9595 or go to the web site at www.perrymangroup.com.]
Texas hospitals say funding cuts for the states Medicaid and SCHIP programs are shortsighted and counterproductive public policy given the current national framework for indigent care.
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