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HHS 7
Maintain the Current Period of Medicaid Eligibility for Children; Postpone the Implementation of Expanded Eligibility Until Fiscal 2006

Summary

The cost of extending continuous Medicaid eligibility from six months to 12 months for Texas children is estimated to be $702.9 million in state and federal funds for the 2004-2005 biennium. State law should be amended to retain the six-month eligibility period and postpone implementation of the 12-month Medicaid eligibility period until fiscal 2006.

Background

Medicaid is a joint federal-state program that provides health care services for low-income Americans. In 2002, Medicaid accounted for an estimated 67.1 percent or $12.6 billion of the state’s health care spending as reflected in the General Appropriations Act. This amount represented an increase of roughly $3.7 billion over fiscal 1998’s spending. A third of the entire Texas state budget is devoted to health care spending; about two-thirds of that amount represents the state’s contribution to Medicaid.[1]

In federal fiscal 1998, Medicaid covered 40 million Americans, including more than 20 percent of all children in the U.S.[2] Over 30 percent of all Texas children under the age of 19 were covered by either Medicaid or the Children’s Health Insurance Program (CHIP) in September 2002. About 1.4 million children received Medicaid, and about 511,000 were enrolled in CHIP.[3]

Medicaid is a primary source of health coverage for poor children. Out of nearly 2.7 million Texans who received Medicaid benefits in federal fiscal 2000, about 1.7 million, or 64 percent, were under age 21. Their Medicaid costs totaled 22 percent of the state’s Medicaid budget in 2000.[4]

In a survey of state Medicaid directors, 43 states reported that Medicaid enrollment increases contributed to higher costs in fiscal 2001, and 27 states listed enrollment increases as one of the top reasons for escalating Medicaid costs.[5]

Determining Medicaid eligibility

Children can become eligible for Medicaid in several ways. Before 1996, when federal law changed, the majority of children qualified for Medicaid because their parents received Aid to Families with Dependent Children (AFDC), which provided them with a monthly assistance check. The 1996 welfare reform law replaced AFDC with the Temporary Assistance for Needy Families (TANF) program. Each state now can set its own income eligibility guidelines for TANF. Each state also determines how families report income changes and when the state will review each family’s income to determine if it is still eligible for financial help.

Children’s health insurance

In 1997, Congress enacted the Balanced Budget Act of 1997 (BBA). The Children’s Health Insurance Program (CHIP) was enacted as part of the BBA to provide federal funding for health insurance coverage for children whose family’s income is too high to qualify for Medicaid, but is too low to purchase private insurance. In fiscal 2001, about 4.6 million children nationwide enrolled in CHIP, a 38 percent increase over fiscal 2000.[6]

The BBA also allowed states to provide Medicaid coverage to children for up to 12 months continuously even if their family’s income increases beyond the Medicaid income-eligibility criteria during the period. Many lower-income families’ earnings increase and decrease frequently; a child may qualify for Medicaid in one month and fail to qualify the next month.

Texas’ Medicaid eligibility for children

S.B. 43, passed by the 2001 Texas Legislature, required the Texas Department of Human Services (DHS) to provide six months of continuous Medicaid eligibility for children by February 2002 and 12 months of continuous eligibility by June 2003. DHS implemented the six-month eligibility period but has not yet implemented the 12-month period. S.B. 43 also mandated the same application form and procedures for Medicaid and CHIP so that parents must apply only once for children’s health insurance.

According to a January 2002 survey of states by the Kaiser Commission on Medicaid and the Uninsured, 42 other states and the District of Columbia have a 12-month Medicaid eligibility period for children.[7]

Fiscal impact of a 12-month period of eligibility

HHSC, which administers Texas Medicaid, estimates that extending the eligibility period from six to 12 months would mean that Texas Medicaid would pay for more than 161,000 additional children each month in fiscal 2004 and almost 187,000 additional children each month in fiscal 2005.

This would cost Texas an additional $282.3 million in state funds for the 2004-2005 biennium. Along with another $420.6 million in federal funds, a total of $702.9 million would be required to implement the 12-month period of Medicaid eligibility for children as currently required by state law.[8]

If these children lose Medicaid eligibility after six months because their family’s income increased, they still would be eligible for CHIP. Once enrolled in CHIP, they would qualify for 12 months of CHIP health insurance. There may be some children, however, who would lose Medicaid eligibility, and whose parents may fail to apply for CHIP coverage.

In addition, Texas receives a higher federal funding match for expenditures in CHIP, as opposed to Medicaid. For fiscal 2002, Texas received a 60.17 percent federal Medicaid match, but a 72.12 percent federal CHIP match.

Texas is prohibited by federal law to spend CHIP funding on any child who is eligible for Medicaid. If the 12-month Medicaid eligibility period were implemented as planned in June 2003, some children who are now eligible for CHIP would become eligible for Medicaid, and Texas would receive a lower federal funding amount to help pay for their medical care. The number of children who would actually transfer from CHIP to Medicaid, if the 12-month Medicaid eligibility period were implemented, cannot be estimated. Savings to CHIP from implementing the 12-month Medicaid eligibility period cannot be estimated.

Postponing implementation of the 12-month Medicaid eligibility period for children would delay increases in Medicaid costs for this measure until fiscal 2006.

Recommendation

State law should be amended to postpone implementation of the 12-month Medicaid eligibility period for children until September 1, 2005.

Fiscal Impact

The fiscal estimates are based on HHSC’s Legislative Appropriations Request. HHSC also provided an estimate of the number of children affected and the costs of services.

Both HHSC and the Texas Department of Health (TDH) would be affected; TDH administers several Medicaid programs such as children’s dental and early detection and screening programs, medical transportation and family planning.

These fiscal estimates do not reflect any savings or costs that would result from additional increases in the number of children estimated to be eligible for Medicaid after fiscal 2005.

Medicaid Savings

Fiscal Year Savings to General Revenue Savings to Federal Funds
2004 $131,194,000 $196,054,000
2005 $151,137,000 $224,548,000
2006 $0 $0
2007 $0 $0
2008 $0 $0

To achieve these savings, HHSC general revenue appropriations would need to be reduced by $117,356,000 in fiscal 2004 and by $135,066,000 in fiscal 2005 from amounts that would be appropriated each year to fund the expansion.

To achieve these savings, TDH general revenue appropriations would need to be reduced by $13,838,000 in fiscal 2004 and by $16,071,000 in fiscal 2005 from amounts that would be appropriated each year to fund the expansion.


Endnotes

[1]Texas Comptroller of Public Accounts, Health Care Spending in the Texas State Budget (Austin, Texas, August 2002), pp. 2-3.

[2]Kaiser Commission on Medicaid and the Uninsured, Medicaid Budgets Under Stress: Survey Findings for State Fiscal Year 2000, 2001 and 2002, by Vernon Smith and Eileen Ellis (Washington, D.C., October 2001), p. 2.

[3]Interview with Edli Colberg, Texas Health and Human Services Commission, Austin, Texas, October 16, 2002.

[4]Texas Health and Human Services Commission, Texas Medicaid in Perspective (Austin, Texas, April 2002), p. 4-8.

[5]Kaiser Commission on Medicaid and the Uninsured, Medicaid Budgets Under Stress: Survey Findings for State Fiscal Year 2000, 2001 and 2002, p. 17.

[6]U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, The State Children’s Health Insurance Program Annual Enrollment Report (Baltimore, Maryland, February 6, 2002), p. 1.

[7]Kaiser Commission on Medicaid and the Uninsured, Enrolling Children and Families in Health Coverage: The Promise of Doing More, by Donna Cohen Ross and Laura Cox, Center on Budget and Policy Priorities (Washington, D.C., June 2002) pp. 34-35.

[8]Texas Health and Human Services Commission, “SB436Versus12MONTHEstimate_LAR.xls,” Austin, Texas, October 13, 2002. (Computer printout.)