News & Media

Health Law, Fall 2010
September 10, 2010

An Overview of the Impact of Federal Health Care Reform on Texas Medicaid and the Practice of Health Law in Texas

In the wake of the passage of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (commonly known as “Federal Health Care Reform”)-by far the most expansive federal government regulation of our nation’s health care system-it is critically important for Texas lawyers to understand the significance of this legislation as they endeavor to keep their clients informed about key issues and advise them of the effect reform will have on their practice and business. The federal government’s regulation of health care has been on-going for decades. Highlights of these federal efforts include: the advent of the federal Medicare and state-run Medicaid programs, established in 1965 subsidizing health care for the elderly and indigent; the Tax Equity and Fiscal Responsibility Act of 1982, impacting eligibility, benefits, reimbursement, and administration of Medicare/Medicaid; and the Health Insurance Portability and Accountability Act of 1996, providing a broad range of health care-related federal regulations and requirements, impacting Medicare and Medicaid. Most recently, and after much debate, the current Federal Health Care Reform legislation was signed into law by President Obama in March 2010.

Federal Health Care Reform (FHCR) was originally estimated as a $940 billion overhaul of health care in the United States. It not only significantly impacts health care insurers and providers, but also health care consumers. The mandates include expansion of covered individuals with employer and individual penalties for failure to comply; development of a health insurance exchange; significant tax implications (credits, increases, and excise taxes); strong quality initiatives; Stark, Anti-Kickback, and fraud implications; and establishment of 111 new government agencies to develop, implement and enforce the reform. In addition, FHCR will have immediate and long-term effects on the Medicare and Medicaid Programs. The legislation will primarily be funded from Medicare cuts, including lower physician reimbursements, and new taxes, which includes a 2.3% Medicare payroll tax and a 3.8% Medicare tax on investment income for individuals with earned income over $200,000 ($250,000 for families). These cuts and taxes will primarily fund the expansion of Medicaid and government subsidies in the new insurance exchange.

FHCR calls for a dramatic expansion of Medicaid coverage by states. In 2014, states must cover individuals and families who are at or below 133% of the federal poverty level. In the past, federal funding of Medicaid has varied, based upon each state’spoverty level, with the poorest states receiving the most funding, but now funding is triggered by the federal figure. The federal government will pay 100% of the cost of the Medicaid expansion from 2014 through 2016, reduced to 95% in 2017 and down to 90% from 2020 forward.

Texas’ Medicaid program currently provides coverage to over 3 million low income Texans.[1] In the past, the overwhelming majority of those covered were children, disabled, and elderly – not healthy adults. However, starting in 2014, states will have to cover all individuals, including healthy adults, with an income of roughly $14,000 or less per year ($29,000 for a family of four), based upon 133% of 2009 federal poverty guidelines.[2]

What is the cost? Beginning in 2017, Texas will start paying its 5% share in the coverage, which will increase to 10% by 2020. While the predicted increase in the cost of Texas funding of Medicaid under FHCR varies, it is undisputed that the overall cost will be in the hundreds of millions of dollars by 2020.[3] The U.S. Senate Finance Committee conservatively estimates the cost to Texas at $2.9 billion from 2010 to 2019, while Texas estimates the cost at $20.4 billion over ten years.[4] The increase in cost is not only due to enrollment of newly eligible adults, but also the expected additional enrollment of currently eligible children once the program’s expansion has come to light. The estimated number of additional enrollees in Texas is as high as 2.5 million.[5] Further considerations include the logistical costs and man-power to manage an expanded program, which is already back-logged and stretched thin. Some proponents of the Medicaid aspect of FHCR, including Texas Rep. Garnet Coleman, note that the increase in jobs and economic activity boost may offset the cost.

Texas lawyers must consider the impact FHCR will have on Texas physicians and health care providers. Our State already faces a shortage of health care providers who accept Medicaid patients because of the significantly lower reimbursement rates as compared to private pay. Currently, only one-third to one-half of Texas physicians accept Medicaid patients. While FHCR will increase Medicaid reimbursement to match federal Medicare reimbursement, the increase is modest and only applicable to primary care services. Moreover, Texas plans to trim 1% from current Medicaid reimbursement rates as part of scheduled budget cuts,[6] which will undoubtedly lead to more physicians refusing to accept Medicaid patients.

Finally, FHCR mandates a strong quality improvement initiative with compliance requirements. It establishes Medicare/Medicaid compliance programs, which must be implemented by Texas health care providers accepting government-funded patients. The government will also develop bundled payment programs as an incentive to coordinate care among various health care providers treating Medicare/Medicaid patients. Further, anti-fraud and abuse funding will be increased by $250 million for enforcement of government regulations, the violation of which will result in steeper penalties and sanctions. Notably, FHCR abolishes the Stark exception permitting physician-owned hospitals, with current entities grandfathered in. This reform will lead to additional litigation and administrative hearings for Medicare/Medicaid providers because it places more scrutiny on their practice and regulatory compliance. Texas lawyers must be aware of these significant changes in health care as a result of FHCR so they are able to inform their clients of the known pitfalls, issues that may impact their practice, and the importance of compliance.


[1] See hhsc.state.tx.us/medicaid

[2] aspe.hhs.gov/poverty/09poverty.shtml.

[3] See texastribune.org; cppp.org

[4] cppp.org

[5] Id.

[6] cbsnews.com