Medicaid Expansion, with an Exit Strategy for Texas

Medicaid Expansion in Texas

The federal government is offering to send billions of Texans’ taxpayer dollars to the states that expand Medicaid coverage to all those earning up to 138 percent of the poverty level. As further enticement, the federal government will fund 100 percent of that expansion for the first three years and at least 90 percent thereafter. But it is up to each state to apply for and implement the expansion to receive these extra federal dollars. Because Texas has the most uninsured citizens in the country, under the Medicaid expansion the state is poised to regain a significant chunk of the tax dollars sent to Washington, D.C. Thus far, it is unclear whether or not Texas leaders will approve the expansion.

Benefits to Uninsured Texans

Roughly 25 percent of all Texans are uninsured – that’s 6.3 million of our fellow Texans. Rice University estimates the Medicaid expansion would reduce the number of uninsured Texans by half by 2014. The expansion would streamline eligibility requirements by allowing workers and families making below 138 percent of the poverty line ($30,675 for a family of four in 2012) to enroll in Medicaid. There will also be a more efficient application process. More important, it will prevent millions of Texans from having to go to a state or federally run health insurance exchange – and sending more money to the federal government.

Benefits to State, Businesses and Taxpayers

While reducing the number of families without insurance is obviously the main goal of the Medicaid expansion, its byproducts provide even more incentives.

Expanding Medicaid coverage will protect large businesses from the penalties they will incur if their entire workforces aren’t covered when the Affordable Care Act fully takes effect.

Hospitals currently forced to serve low-income, uninsured and high-cost patients for free will be reimbursed, cost-shifting onto other patients will decrease and state and local tax burdens will be relieved. A recent Vanderbilt University study shows that without implementing the expansion those same hospitals will likely face unexpected budget cuts due to reductions in Medicaid and Medicare reimbursements.

Perhaps most important for the coming legislative session is the expansion’s ability to help legislators build a bridge to balanced budgets for the next biennium and beyond. As more people gain coverage under the federally funded expansion, the number relying on state fiscal resources should decline.


Make no mistake. Expanding Medicaid costs money. It would require Texas to begin saving now for the day when the state will have to pick up ten percent of the expansion’s tab – a difficult task in these uncertain economic times. The state’s 10.71 percent cap on increased state spending may also complicate those savings. Others have suggested an even lower spending level by tying Texas budget increases to population growth and inflation. Further, Texas has already underfunded the existing Medicaid program by nearly $5 million.

The federal government is offering to pay 100 percent of the cost of covering “newly eligible individuals” (those not eligible under the current Medicaid plan) in 2014, 2015, and 2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019 and 90 percent by 2020. The expansion will cost Texas an estimated $5.7 billion from 2013 to 2022, with the federal government sending back to the state $65.6 billion over that same period.

Texas already faces tough decisions in budgeting for other necessary state services. A Medicaid expansion may be viewed as just adding yet another line to the appropriations bill. Or it may be viewed as an opportunity to use Texans’ federal taxpayer dollars to help fellow Texans rather than other states’ uninsured citizens.

Medicaid Expansion, With an Exit Strategy

Without the Medicaid expansion, our state will lose billions in Texans’ taxpayer dollars to other states while remaining at the very bottom in the nation in health insurance coverage. The over six billion insured and uninsured Texans and their families will watch as their federal income tax money is sent to help workers and families in other states gain coverage.

Fortunately, if the expansion proves too expensive or otherwise problematic, Texas retains the right to end it at any time (even after the first three fully paid years).

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