2003 Legislative Compendium: Health Care Funding

[ Highlights of Major Health and Human Service Cuts in HB 1. | Cigarette Fee Increases ]

Budget. No budget. Budget. After weeks of speculation about whether Comptroller Carole Keeton Strayhorn would be able to certify the budget, on June 19 the comptroller announced her office was, in fact, not able to do so for the first time in 30 years. The $117 billion budget crafted by lawmakers was, according Comptroller Strayhorn, $185 million short. The announcement set off sighs of grief by lawmakers and lobbyists and indignation and frustration by the governor, lieutenant governor, and speaker. The latter three felt that an administrative mechanism - across the board cuts - should have allowed the comptroller to certify the budget regardless of whether the numbers added up. Attorney General Gregg Abbott agreed and requested that the Texas Supreme Court make a final determination. Yet, barely 24 hours after the comptroller's announcement, the governor ended the standoff by vetoing two comptroller-backed bills. Combined, the two bills freed up $212 million, which covered the shortfall and allowed the comptroller to certify the budget.

Texas legislators arrived in Austin confronting a $10 billion budget shortfall. After campaigning for months with pledges of "no new taxes" and improved government efficiency, legislative leadership had few options for tackling the budget - break their pledges or cut their way out of the budget hole. Texas legislators chose the latter. Health and human service expenditures are second only to education within the Texas budget. Few legislators were willing to publicly discuss cuts to public education, though the final budget bill did contain substantial cutbacks for higher education. However, health care services were named a top target. Many of the cutbacks were cloaked under the guise of "improved program efficiency" or reductions in "fraud and abuse." Yet, at the end of the day, Texas' already efficient Medicaid program and Children's Health Insurance Program (CHIP) could yield savings only by cutting services and reducing eligibility.

An unprecedented chorus of voices from organized medicine, county officials, hospitals, and consumer advocacy groups helped to mitigate the cutbacks. The legislature started budget hearings with documents outlining elimination of most "optional" Medicaid services, including Medicaid drug coverage, and 33- percent rate reductions for physicians and other Medicaid providers. Despite the progress, by 2005 about 500,000 more low-income Texans will be uninsured or underinsured, with the costs of their care shifted directly to physicians, hospitals, local taxpayers, and employers, all of whom already are reeling from higher health insurance costs, economic malaise, and higher property taxes.             

On the horizon…

At the end of the legislative session, Congress passed a tax bill that included temporary state relief for rising Medicaid and other health care costs. Texas gained $1.26 billion as a result of Congress' generosity. A nonbinding rider within House Bill 1 prioritizes use of the funds once they become available. At the top of the priority list is restoration of the Medicaid physician and provider rate cuts, followed by restoring cuts in community care for elderly and disabled patients, Medicaid prenatal care for pregnant women, and other important services. To certify the budget, the comptroller did use the majority of the funds. Yet, at least $370 million is available. The governor and Legislative Budget Board (LBB) agreed in August to use $167 million of the funds to reduce physician and provider rate cuts by half (for physicians, the impending 5-percent cut will now be 2.5 percent) and to restore community care services for elderly and disabled Medicaid patients. The governor and LBB indicated that the remaining monies will be kept in reserve for emergencies. Additionally, another $330 million to $430 million could be freed up as a result of the veto of two bills and technical corrections to others during the special session.

TMA strenuously advocates all the money being put back into health and human services. About $1.1 billion is needed to avert nearly all the reductions in coverage.

Impact of health care funding cuts on physician practices: There's no way to mince words: spending reductions within HB 1 undoubtedly will have a detrimental impact on patient care and the financial health of many physician practices, particularly those in underserved communities. The most direct impact is the reduction in Medicaid and CHIP payment. Additionally, cuts in eligibility and services will increase the number of poor and low-income uninsured or underinsured patients seen in many physician practices. TMA, together with county medical and state specialty societies and the Border Health Caucus, will advocate vigorously throughout the interim the use of any newly identified funds for the restoration of reductions to health and human services.

Following are highlights of the major health and human service cuts in HB 1. (Note: Many of the same cuts are codified in HB 2292, which is discussed below.)

Reduces Medicaid coverage for adult pregnant women from 185 percent of federal poverty to 158 percent.

Impact: Approximately 8,000 women will lose prenatal care. The number does not include the impact of legal and illegal immigrant women who no longer will qualify for emergency Medicaid for the delivery of their babies. 

Reduces community care services, such as attendant care, for disabled and elderly patients.
   (Addendum: In August, the governor and LBB agreed to allocate a portion of newly received federal Medicaid monies to fully restore community care.)

Impact: Hours of services reduced by 15 percent for 100,000 patients. Loss of services could result in more patients forced into a nursing home.

Eliminates Medicaid medically needy spend-down program.

Impact: At least 9,959 severely ill adult patients will not be eligible for Medicaid once they "spend down" their income to 17 percent of poverty. The number does not include the impact to legal and illegal immigrant patients who qualify for emergency Medicaid as a result of extreme illness.

Preserves CHIP at 200 percent of poverty, which TMA strongly supported, but rolls back continuous coverage from 12 months to six; imposes a 90-day waiting period for children initially enrolled in CHIP; and increases family cost sharing to federal maximum thresholds.

Impact: Combined, these policy decisions are expected to cut 170,000 children from CHIP. 

Eliminates mental health benefits, rehabilitative and habilitative services, home health, hospice, dental, and durable medical equipment (DME) coverage from CHIP.

Impact: Will affect an unknown number of children; the reduction in benefits will impair significantly the ability of chronically ill or disabled children to receive medically necessary care. The Health and Human Services Commission (HHSC) is authorized within HB 1 to adjust the benefit package so long as changes are budget neutral. HHSC is in the process of identifying mechanisms to reinstate as many services as possible, particularly physical, occupational, and speech therapies and DME. The federal government must approve the new benefit plan. If approved, Texas will be the only state to implement a benefit package without coverage of mental health and beneath the actuarial requirements within the CHIP enabling legislation. 

Retains six months continuous eligibility for children's Medicaid.

Impact: Assures continuous and better care for low-income children. TMA, together with the Texas Pediatric Society and Texas Academy of Family Physicians, vigorously advocated retaining this provision within Medicaid. TMA helped enact continuous eligibility in 2001 when the legislature passed Senate Bill 43 to simplify children's Medicaid. The budget and related legislation freeze Medicaid continuous eligibility at six months rather than going to 12 months coverage in June of this year. The freeze will allow the legislature to revisit the issue in 2005.

Reduces Medicaid and CHIP physician, hospital, and health plan rates by 5 percent. (Addendum: In August, the governor and LBB agreed to allocate a portion of newly received federal Medicaid monies to reduce the payment reductions by 2.5 percent).

Impact: Fewer than half of Texas physicians currently accept new Medicaid patients. A recent survey of family physicians showed that only one-third would continue to accept Medicaid patients if rate cuts were imposed, thus jeopardizing vulnerable, low-income patients' access to timely, quality care. Further rate reductions will undoubtedly decrease access to care for low-income patients and further strain already overcrowded emergency departments and public clinics. In the final hours of budget talks, legislators agreed to a rider dedicating $1.26 billion in new federal monies to restoring some or all of the cuts. However, allocation of the funds is predicated on funds not otherwise being used by the comptroller to certify the budget. To certify the budget, the comptroller did use a portion of the federal funds. It is not yet known whether sufficient dollars will be available to restore rates.  

Cuts funding for HIV/AIDS medication for poor and low-income patients.

Impact: The legislature reduced this program's budget by $11.5 million, a comparatively low amount when contrasted with other programs. However, growth in the number of patients needing services and increased medication costs means that 2,000 fewer patients will receive services over the next two years. 

Reduces community mental health and mental retardation services.

Impact: Three thousand fewer patients will receive community mental health services. The cuts in services are in addition to elimination of the CHIP mental health benefit, effectively cutting off any mental health treatment for most low-income children in need. Texas already services less that one-third of the children requiring treatment for severe mental and emotional health disorders.  

Reduces graduate medical education funding by $41.6 million.

Impact: It is not known how this measure will affect direct patient, yet the reduction in funding undoubtedly will strain Texas' ability to train the next generation of physicians and provide indigent care by physician residents. 

Eliminates most "optional" Medicaid services for adults.

Impact: HB1 eliminates adult Medicaid patients' coverage for podiatric care, chiropractic, mental health counseling, hearing aids, and eyeglasses.  Approximately 175,000 patients, most of whom are elderly and disabled, will lose coverage.

Health Care Funding near misses


Several bills were filed this session to increase fees on cigarettes by $1 per pack. The comptroller estimated that a $1 fee increase would generate $1.5 billion over the next two years, enough to avert the health and human services cutbacks. Moreover, higher cigarette costs would discourage teenagers from smoking, a major public health goal for Texas. TMA strongly supported the legislation. While a few bills did get a cursory hearing, they died without much debate. Governor Perry announced early in the session his opposition to any tax increase, including sin taxes. His position remained inalterable all session. However, Governor Perry has indicated that sin taxes will be considered in the special session on public school finance, which is expected to be called early in 2004. TMA will continue to advocate use of a cigarette tax for restoring health and human service reductions.

Health care funding TMA staff contacts:

-Helen Kent Davis, director, Office of Governmental Affairs, (512) 370-1401
-Stephen Brown, associate director, Legislative Affairs Department, (512) 370-1367

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Last Updated On

July 23, 2010