While Texas grapples with a mounting crisis in the State budget, every line item is subject to close scrutiny. Large and growing categories of spending are, naturally, receiving particular attention as legislators struggle to find ways to reduce expenditures. As one of the largest segments of the state budget, Medicaid and the Children’s Health Insurance Program (CHIP) have recently come under fire. These programs, partially funded by State resources, provide healthcare access for low-income individuals and qualifying children, respectively. Currently, they are facing significant and rapidly escalating costs. Not surprisingly, numerous proposals have surfaced to reduce commitments to Medicaid and CHIP.
It is certainly worthwhile to explore any available options to enhance efficiency or decrease costs without sacrificing healthcare access. However, limits on the medical service delivery system can be detrimental from several perspectives. First, the health of the populace is a defining characteristic in the prosperity of every region. Second, the majority of Medicaid and CHIP financing occurs at the federal level. Thus, each dollar of reductions in the State commitment brings a net withdrawal of even larger magnitude in money available for healthcare in Texas. Third, the proposed cuts in Medicaid and CHIP set off a chain reaction of responses in terms of access, insurance rates, local taxes, and dynamic fiscal resources which yields adverse consequences and minimizes or eliminates any short-term increases in revenue.
The nature and magnitude of the cuts is clearly a moving target, with new twists surfacing almost daily. While the primary benefits of Medicaid and CHIP lie in the provision of medical and related services to the least advantaged segments of the population, they are also important elements of the Texas economy which are largely supported by external sources. Any potential reduction in funding for these two programs causes not only enormous consequences for those no longer eligible for much-needed insurance, but imposes a notable cost to the state economy as well. In a recent study, my firm analyzed the economic fallout from plans to scale back Medicaid and CHIP spending. Among the provisions typically included are elimination of coverage for large numbers of the CHIP and some Medicaid recipients and significant decline in physician reimbursements for Medicaid patients.
Reductions in Medicaid and CHIP benefits are unlikely to cause a decline in the cost of healthcare delivery in Texas. Instead, the most probable outcome is that the burdens will be shifted to other entities. The reimbursement decreases, for example, are likely to substantially reduce access, as less than half of physicians accept new Medicaid patients at present payout levels. Similarly, it is probable that the reductions in coverage will increase the expense associated with medical services. There is also every reason to believe that insurance costs will rise as a portion of the financial burden stemming from the larger numbers of uninsured Texans is spread through the private insurance system.
So how bad an idea are the proposed reductions? We looked at what happens when $1.00 of state revenue is taken out of the Medicaid and CHIP Plans. Here are some key findings. Business activity in Texas declines by $19.14 (measured on a dynamic basis). The State has a dynamic revenue loss of $0.46, meaning that reduced economic activity causes a loss of tax revenue. Local taxes rise by $0.51. Private insurance premiums rise by $1.34. Some $2.81 in federal funds leave the Texas healthcare system (measured on a dynamic basis). Texas healthcare providers suffer direct uncompensated losses of $0.53. Individuals in Texas pay out-of-pocket increases in taxes and insurance of $1.01 and see total losses of $3.38. Businesses in Texas pay out-of-pocket increases in taxes and insurance of $1.58 and suffer total revenue losses of $10.28. Induced losses of insurance coverage raise healthcare costs by $0.62. Retail sales decline by $1.77.
A comprehensive examination of the economic aspects of the key programs in the medical safety net leads to one basic conclusion: any benefits of funding reductions to the State budget are more than offset by the adverse consequences for business activity. When combined with the economic development implications of higher insurance rates and the detriment to the critical infrastructure which ensures physical wellbeing, it is evident that, even in a fiscally constrained environment, maintaining adequate funding for Medicaid and CHIP represents a critical investment in the ongoing prosperity of Texas.