Texas' Rickety Health Care System Heads for a Fiscal Cliff

As D.C. dollars dry up, millions of uninsured Texans see no signs of improvement


Art by Zeke Barbaro / Getty Images

Everything's bigger in Texas – except for the system that's supposed to provide lifesaving health care to millions of its most vulnerable residents. About 5 million Tex­ans live without health insurance, the most of any state. That has only worsened during the COVID-19 pandemic and the economic shocks it's created; an estimated 1.6 million Texans lost employer-sponsored insurance in the first three months of the pandemic, between March and May of 2020. All these people rely on a threadbare safety net system of subsidized clinics and hospital emergency rooms for which the state has been loath to provide resources.

The simplest and most obvious way to address this problem, and to reduce Texas' uninsured population by about one-third, would be to expand Medicaid to all low­-income adults, as the Affordable Care Act was designed to do before the U.S. Supreme Court ruled that states could opt out of the expansion. Texas did so, in a petty political power play that it has refused to reconsider as the state's ruling Republican party gets more ornery, even as the growing health care burden threatens to bankrupt hospitals across the state. During the 87th Texas Legislature, Dem­o­crats filed dozens of bills aimed at closing the state's immense coverage gap, including with customized "Texas solutions" for expanding Medicaid that gained bipartisan support but still failed to pass (and likely would have been vetoed by Gov. Greg Abbott if they had).

The rickety vehicle that is the Texas health care system is heading over a fiscal cliff, with the well-being of 1 in 5 Texans on board.

Because of the recalcitrance of a dozen GOP-led states, several million Americans live in health care limbo, not poor enough to qualify for traditional Medicaid in their states but not wealthy enough to be eligible for the subsidies available through the ACA's Health Insurance Marketplace, which is having its open enrollment period for 2022 right now.

Texas is the largest of those states, and the Kaiser Family Foundation – the nation's leading source of health care data – estimates that 1.4 million uninsured adults between 18 and 65 would be covered if the state dropped its resistance to Medicaid expansion. That would mean $9 would come from the feds for every $1 Texas invested in Medicaid; combined with incentives and sweeteners available under the American Rescue Plan Act, KFF estimates the state could bring in $5 billion over the next two years.

So as it's evaded the dread clutches of "Obamacare," has Texas been going it alone, paying out of its own pockets for the care its doctors and hospitals provide to the uninsured? Not exactly. Having turned down the ACA Medicaid dollars, Texas has leaned heavily on a different federal funding agreement to support safety net providers and their low-income patients. The agreement is known as the Section 1115 waiver; that portion of the federal Social Security Act can give states "additional flexibility to design and improve their programs [and] demonstrate and evaluate state-specific policy approaches to better serving Medicaid populations," according to the U.S. Centers for Medicare & Medicaid Services, or CMS.

In Texas, the 1115 waiver has provided billions of dollars since 2012, flowing into two pools from which the state's providers can draw funds. One is specifically for uncompensated care (UC) to uninsured patients, mostly in hospitals. The other was intended as a bonus: the Delivery System Reform Incentive Payment (DSRIP, pronounced "diss-rip") program, which incentivizes regional providers to innovate health care delivery for low-income or uninsured Texans, whether or not they're covered by Texas' stingiest-in-the-nation Medicaid program. (It's almost impossible for adults who are not pregnant or disabled to qualify for Texas Medicaid.)

Those billions of dollars – upwards of $15 billion for DSRIP projects alone in the last decade – are disappearing if Texas continues to not get its act together. An extension of the 1115 waiver for another decade had been granted to the state by the Trump administration but was rescinded by the Biden team, which felt the Texas Health and Human Services Commission hadn't gotten sufficient public and stakeholder input for its proposals. If HHSC and CMS fail to come to terms, the waiver expires in September 2022. The DSRIP program has already ended, and the mechanism the state wants to use to replace it is also being negotiated. As it stands, the rickety vehicle that is the Texas health care system is heading over a fiscal cliff, with the well-being of 1 in 5 Texans on board.

Not According to Plan

Though intended as a bonus program to fund demonstration projects, DSRIP has been used in Texas as a major funding stream for its safety net providers and hospitals. Those receiving 1115 waiver funds (both DSRIP and UC) participate in one of 20 Regional Healthcare Partnerships (RHPs) around the state, each with an "anchor" agency. The collaborations fostered by the RHPs to work across regions to address community health needs are seen by many as DSRIP's major success. For the first five years of the program, between 2012 and 2017, HHSC estimates that about 40% of the state's DSRIP funding went to care for low-income and uninsured Texans.

About 5 million Texans live without health insurance, the most of any state.

Back in 2011, when CMS and HHSC negotiated the terms of the Texas waiver, it was still mandated by the ACA that the state would expand Medicaid at some point. As such, DSRIP was designed to provide funds to build out the state's provider network in preparation for an influx of Medicaid enrollees. It was only a few months after the waiver's approval, however, that SCOTUS ruled in National Federation of Independent Business v. Sebelius that while the ACA as a whole was legal, its Medicaid mandates were not, and states could choose not to expand their programs.

"CMS always had the intention that [DSRIP] payments were to incentivize the system to improve and, ultimately, be able to integrate their system improvements into the Medicaid program and support the state of Texas that way," explained Katie Coburn, director of regional health care at Central Health. The tax-supported Travis County local health care district serves as the anchor for RHP 7, interpreting 1115 waiver policies and requirements and collecting and reporting data on community health needs. The RHP region encompasses Bastrop, Caldwell, Fayette, Hays, Lee, and Travis counties; its DSRIP providers include Austin Public Health, local mental health authority Integral Care, and hospitals including Central Texas Medical Center in San Marcos, Dell Children's Medical Center, and the St. David's and Ascension Seton systems.

Also part of RHP 7 is the Community Care Collaborative (CCC), Central Health's public-private partnership with Ascension Seton, which purchases services from providers to care for underserved and underinsured Travis County residents. The largest of these is the CommUnityCare network of primary care clinics in Travis County, which is itself governed under the auspices of Central Health. For the CCC, said Coburn, the average annual fiscal impact of its DSRIP program is approximately $53 million; to date, the CCC has received $510 million in DSRIP payments, and RHP 7 providers have received $1.4 billion over the 10-year life of the DSRIP program. Those funds have been used to improve outcomes in behavioral health and chronic disease management (diabetes and heart disease), cancer screening, and primary care and prevention, among other focus areas.

No Coverage for You, Yet

This summer, less than two months before DSRIP was scheduled to expire in September, CMS offered Texas a one-year, $2.49 billion extension and said it would continue to work with HHSC on its transition plan. Those funds are not yet flowing, as talks continue between HHSC and CMS about the one-year offer and about the set of six state-directed payment programs (SDPs) Texas has proposed to succeed DSRIP over the next decade.

Two of those SDPs already exist and CMS has also offered to temporarily extend their current funding: the Uniform Hospital Rate Increase Program, which boosts payments to hospitals who treat Medicaid patients, and the Quality Incentive Payment Program (QIPP) for nursing home facilities. Mean­while, Texas has proposed four new SDPs for its DSRIP transition – including programs to further enhance payments to hospitals and to their physicians, support behavioral health care, and meet rural needs. This Tuesday, Nov. 16, HHSC notified stakeholders that it had received approvals from CMS for QIPP and for its new behavioral health program, retroactive to Sept. 1.


Anne Dunkelberg (Photo by Jana Birchum)
The new programs that will replace DSRIP will largely benefit Texans who are already enrolled in Medicaid, not the uninsured.

Unlike DSRIP to date, these new programs will largely benefit Texans who are already enrolled in Medicaid, not the uninsured, said Anne Dunkelberg, who oversees health care policy at the Austin-based public policy organization Every Texan. That loss of funding concerns her: "The fear is, obviously, that it's even harder for uninsured Texans to get the care they need than it was before, and the health care providers across Texas that were benefiting from that funding may be stretched further and may have to cut back on the services they provide," she said. Moreover, while Texans covered by Medicaid have difficulty finding primary care providers who'll treat them in many parts of the state, the providers who will – such as CommUnityCare – won't be able to access these proposed substitutes to DSRIP.

Consumer advocates say Texas needs all of these fiscal supports for safety net health care and Medicaid enrollees and also needs to work harder to produce a coverage solution for its millions of uninsured. "We don't have any trouble with uncompensated care pools, we don't have any trouble with directed payments," said Dunkelberg, "but they are not an acceptable substitute for providing people with comprehensive health coverage."

The State’s Shrinking Share

Over the last two decades, the Texas Legis­lat­ure and GOP governors have worked to minimize the actual state funding for safety net health care as much as possible. This has happened, explains Dunkel­berg, by lawmakers creating a "raft of ever-changing supplemental payments and pushing the 'state' share of those payments onto local governments and provider taxes – both of which are subject to their own sets of federal law and [regulations]."

Like the ACA's Medicaid expansion provisions, the current 1115 waiver requires Texas to put up a certain share of the money to draw down the larger share of federal dollars. Yet Texas relies on local governments and other public entities, such as Central Health and its support from Travis County property taxpayers, for its share of DSRIP and UC costs. States passing their fiscal obligations for Medicaid and safety net programs onto local funders and providers is part of a larger national trend, said Dunkelberg, but "Texas is one of the most reliant states on that external, outside-of-state-budget funding." As it's become more common, CMS has become more watchful of how states have avoided their own fiscal responsibilities, said Dunkelberg. "It's been an issue in every administration – not just one [political] party."

The federal Office of Inspector General performed an audit of Texas' DSRIP program focusing on two of the 20 RHPs – Central Texas' RHP 7, and RHP 9 in the Dallas area. In the first five years of Texas' DSRIP program, the audit found that within RHP 7, two entities received the majority of DSRIP payments: the CCC ($244.6 million) and Seton ($201.3 million). According to the OIG's findings, Central Health used its own funds to cover the share that should have been paid by the state, allowing Texas to "inappropriately" receive just under $84 million in federal "matching" funds that the audit recommends be refunded, along with steps HHSC should take to keep such "impermissible provider-related donations" from occurring in the future.

The audit notes that HHSC did not concur with these two recommendations. In a written comment to the Chronicle, a Central Health spokesperson said its lawyers advised the organization to refrain from extensive comments on the audit, but added, "Central Health also disagrees with the OIG's findings and recommendations." Central Health is not aware of any further developments regarding the audit or potential enforcement of penalties, said the spokesperson. In its Nov. 16 notice to stakeholders, HHSC said, without making reference to the OIG audits, that it had "received a letter from CMS regarding non-federal share funding" and would soon "set up a call to review expectations with providers."


U.S. Rep. Lloyd Doggett in October at the Austin kickoff for Affordable Care Act open enrollment for 2022 (Photo by Jana Birchum)
An estimated 1.4 million uninsured adults between 18 and 65 would be covered if the state dropped its resistance to Medicaid expansion. That would mean $9 would come from the feds for every $1 Texas invested in Medicaid.

Help From the Build Back Better Act?

As the stalemate between Texas and D.C. continues, another potential coverage solution for low-income and uninsured Texans is now being debated in Congress as part of the proposed Build Back Better Act. Under its current framework, the BBB's coverage provisions emphasize strengthening the Affordable Care Act and closing the Medic­aid coverage gap. One provision would reduce premiums for people buying coverage through the ACA Marketplace through 2025, while another key measure would allow individuals whose income is under the poverty line to newly qualify for subsidized marketplace coverage, also through 2025. U.S. Rep. Lloyd Doggett, D-Austin, who chairs the health subcommittee of the House Ways and Means Committee – which gives him substantial influence over Medic­aid funding – has for years proposed ways for localities to work directly with CMS and go around balky state agencies like HHSC, some of which have worked their way into the Build Back Better conversation.

The provisions currently in the BBB framework, however, would actually reduce the funds that already flow to Texas hospitals for safety net care for both Medicaid and non-Medicaid low-income patients. In a Nov. 3 letter to the state's congressional delegation, the Texas Hospital Association implored lawmakers to eliminate these proposed cuts. "We're happy to have those payments reduced as more folks become insured," said John Hawkins, senior vice president of government relations and incoming president of THA. "But maybe phasing [the cuts] would be more appropriate than just making these arbitrary. It doesn't make sense to expand coverage for folks, but then at the same time be undermining the actual system that's going to be providing that care." Hawkins said the BBB provisions allow for more dollars to come to Texas than HHSC would otherwise draw down, but in THA's view, its proposed cuts are "overly punitive to providers in these nonexpansion states for decisions that are, by and large, outside of our control."

So who does control these decisions? The state's health care agencies that have already been overmatched by the corona­virus for nearly two years? The fervent GOP primary base to which Abbott is desperately pandering in an attempt to keep his job? A future Democratic successor? The 88th Legislature? It's hard to say right now, but hopefully the approaching fiscal cliff will serve to wake up complacent Texas leaders and put the safety net health care system on a safer path forward.


What the Health? A Brief Glossary on Texas’ Medicaid Terms:

Section 1115 waiver: A multiyear, multibillion-dollar funding agreement between the Texas Health and Human Services Commission and the federal Centers for Medicare & Medicaid Services that gives Texas federal funds to help the state partly offset the costs of Texas hospitals and safety net providers providing care to low-income or uninsured patients.

Delivery System Reform Incentive Payment (DSRIP): As part of Texas' current 1115 waiver, this funding program incentivizes participating entities to come up with innovations for delivering health care services to low-income or uninsured patients.

Uncompensated care (UC): Also part of Texas' 1115 waiver, UC funding reimburses Texas hospitals for providing care to uninsured patients.

Medicaid expansion: When states elect to expand Medicaid under the Affordable Care Act, they receive 90% (or more) of the funding to cover people with household incomes up to 138% of the federal poverty level. In Texas, for adults who are not disabled, pregnant, or recently postpartum, that income threshold is a mere 12% of the poverty level.

ACA Medicaid coverage gap: In states that have not expanded Medicaid, uninsured adults whose incomes are too high to qualify for coverage under their state's current criteria but are still under the federal poverty level threshold can't qualify for subsidies through the Affordable Care Act's Health Insurance Marketplace.

Regional Healthcare Partnership (RHP): There are 20 geographically defined RHPs in Texas that include participating public and private hospitals and providers. Under Texas' current 1115 waiver, an entity must participate in an RHP in order to receive UC or DSRIP funding.

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