New Study: TX Lege Will Save Money By Implementing Medicaid Expansion

Medicaid expansion is critically important for boosting the state's economic recovery during COVID-19 and helping uninsured Texans stop cancer before it spreads, have a healthier pregnancy, seek help for mental health needs, get COVID-19 testing and treatment, or address other health needs before they get worse and more expensive.

And now a new study published by the Episcopal Health Foundation is the latest to suggest that Texas budget writers could also save a substantial amount of money for the state by accepting billions of dollars in federal Medicaid expansion funding.

In light of the revenue shortfall facing state legislators and the alarming growth in the Texas uninsured rate, the new analysis by consultants Randy Fritz, John R. Pitts, and John R. Pitts, Jr. is likely to add to the growing chorus of calls for approving Medicaid expansion during the upcoming Texas legislative session.

Under federal law, the federal government pays 90 percent of the costs of offering insurance to low-wage adults through Medicaid expansion. Texas is one of the few remaining states that has not accepted the funding yet. As a result, uninsured child care educators, grocery store cashiers, and other essential workers below the poverty line in Texas typically do not have access to Medicaid or any other affordable insurance option.

The new study finds that the 10 percent (non-federal) cost share of implementing Medicaid expansion in Texas would be fully covered by the savings and new revenues that Medicaid expansion generates for the state government — with extra savings left over. The authors estimate that the non-federal costs would be $650 million per year and annual state savings would total $704 million, for a net state budget savings of $54 million per year. Their conservative estimate of state savings is largely based on reduced need for state dollars (“general revenue”) for programs and services that would start receiving federal Medicaid expansion funding, such as Medicaid for pregnant women, community mental health services, and inpatient care of incarcerated patients.

The report notes that the state could identify a new funding source to cover the $650 million non-federal share of Medicaid expansion rather than paying for it out of the $704 million in savings. In fact, recent Medicaid expansion discussions in Texas have theorized that the funding for the non-federal share of the cost might be financed in part by redirecting a portion of local government funds and health care provider funds that Texas uses to cover the state’s share in the current 1115 Medicaid Waiver. If the state combined some of those funds with other new revenue sources to ensure costs are fairly distributed statewide and across all the sectors that would be receiving more Medicaid revenue, the Legislature could cover the $650 million cost, and let the $704 million in annual savings be used to fill other needs in the state budget.

In other words, Medicaid expansion could provide a modest $54 million annual boost to the state budget (over $100 million for the two-year budget), or a boost that potentially approaches $1.4 billion in the two-year state budget if new revenue sources are established to fully pay for the state’s 10 percent share.

Regardless of how Texas funds its plan to draw down billions of federal Medicaid dollars, we look forward to working with state leaders next session to help more Texans stay healthy and save the state money by passing Medicaid expansion.