Delay the August 1995 Payment for Medicaid Claims Processing

The Legislature should temporarily delay its August 1995 payment to the state s Medicaid insurance contractor until fiscal 1996.

Texas provides its Medicaid benefits through its Purchased Health Services program, which pays for acute care services including long-term care, adult day health services, hospice care, primary home care, medical transportation, home and community-based wa ivers and prescription drug benefits. The state determines eligibility and establishes payment rates for services under the Medicaid program.

The Purchased Health Services program involves an arrangement through which the state purchases insurance to provide medical benefits for most eligible recipients. Texas and Indiana are the only states that provide Medicaid benefits through an insurance contract. The rationale behind the contractual arrangement is that it provides budgetary stabilit y and predictability, particularly in view of the relatively long planning periods required by Texas biennial budgeting process.

The state makes monthly payments to its insurance contractor, the National Heritage Insurance Corporation (NHIC), based on projected costs. NHIC pays Medicaid recipients based on the program s actual costs. The difference goes into a Risk Stabilization Reserve, which usually maintains a positive balance. If the balance in the fund should become negative, the Department of Human Services (DHS) has the authority to transfer in the amount needed to corre ct the problem.

NHIC s contract limits the company s profits to 5 percent of administrative premiums. If actual costs fall short of 95 percent of total administrative premiums, the difference is returned to the state. The contract requires that the Risk Stabilization Rese rve be evaluated at six-month intervals to determine if adjustments need to be made to correct any excess or shortfall. NHIC has never incurred a loss, and program costs have always been below premium payments. 1

The state s premium payments are main tained by the contractor outside the State Treasury. This arrangement has advantages and disadvantages. Making the payments in advance allows the state to draw down federal matching funds sooner than if funds are paid to recipients as costs are incurred; T exas receives its federal funds at the time of the premium payment. However, the advance-payment procedure means that money leaves the General Revenue Fund before costs are actually incurred, which can complicate the state s cash flow.

Corrective mechanisms built into the system allow the state a certain amount of flexibility in making Medicaid payments. In 1991, the Legislature appropriated to DHS 11 months worth of payments for the Purchased Health Services program in fiscal 1993. The effect of this ac tion was to delay the August 1993 NHIC payment until the following biennium. The amount of funds that will be retained in the General Revenue Fund in August 1993 is estimated at $93.3 million. The matching federal funds associated with the state contributi on approximately $169 million also will be delayed until September 1993. 2 No harm is done to any parties involved in the Medicaid claims process. Clients still receive all Medicaid money claimed and NHIC still receives its money. The August 1995 payment can be delayed in the same way to delay the cost until fiscal 1996 without harming the process.

The Legislature should delay the August 1995 payment to the National Heritage Insurance Corporation until fiscal 1996. This would be accomplished by reducing fiscal 1995 appropriations for Purchased Health Care Services in the appropriations bill.

This delay would result in a savings to the General Revenue Fund for the 1994-95 biennium. The Medicaid program would continue to operate with no loss in services. Using the Risk Stabilization Reserve and other corrective mechanisms built into the program would allow the Purchased Health Services program to continue to pay all Medicaid claims during this period. The federal matching funds that would be received in August 1995 would be delayed until September 1995, in fiscal 1996.

Fiscal Impact
Savings to the General Revenue Fund in fiscal 1995 from implementing this recommendation would be approximately $93.3 million based on the 1993 level of funding. The payment would be made in fiscal 1996.

Fiscal Savings/(Cost) to the Change in Change in
Year General Revenue Fund 001 Federal Funding FTEs

1994 $ 0 $ 0 0
1995 93,300,000 (169,000,000) 0
1996 (93,300,000) 169,000,000 0
1997 0 0 0
1998 0 0 0

1 Lewin/ICF, Health & Sciences International, Incorporated, Evaluation of Medicaid Financing Options (Washington, D. C., July 1, 1991), p. 10.
2 Interview with Steve Scarborough, Department of Human Services, Austin, Texas, January 7, 1993.