A Tale of Two Sessions

The last time the Legislature convened under a budget shortfall, drastic cuts made to children’s health care programs and payments to physicians who care for them kicked 200,000 kids off the rolls and forced physicians to choose between their commitment to their patients and financial solvency. With these losses still not fully regained, Texas cannot afford to let history repeat itself.

By Kate McCann

Facing a severe budget shortfall projected to be between $11 billion and $20 billion for the 2012-2013 biennium, Texas’ top three leaders—Gov. Rick Perry, Lt. Gov. David Dewhurst, and House Speaker Joe Straus—directed state agencies to scrutinize their spending and propose a 5 percent reduction in state general revenue for 2010-2011. For the Texas Health and Human Services Commission, which oversees Medicaid and the Children’s Health Insurance Program, this meant trimming $278 million from their $5.6 billion general revenue budget.

Complicating this impossible task were exemptions that made nearly three-quarters of HHSC’s budget off-limits, including eligibility staffing levels, Medicaid enrollment, CHIP benefit levels, and the foster care program. With few options left, the commission reluctantly followed orders, presenting a plan at an all-day hearing in February to an auditorium packed with physician groups, patient advocates, and other stakeholders, all fearing the worst.

As put forth in the plan, more than a third of the proposed savings to the state, or $99 million, would come from provider reimbursements. Physicians who treat Medicaid and CHIP patients would see a 1 percent reduction in payments, yielding $50 million; and physicians who treat adult Medicaid patients in nursing homes and acute care settings would see an additional 1 percent cut, or $35 million. A rate reduction to managed care would yield $14.5 million. The agency proposals are now in the hands of the Legislative Budget Board, which will join the governor in making the final call on what spending cuts take effect on Sept. 1.

The medical community understands the need to find cost-saving measures in tough budget times, but many caution against further reductions in physician Medicaid payments that could drive physicians away from the program, especially with federal health reform on the horizon. “We cannot reduce fees any more; you’re going to lose physicians,” says Austin family physician Guadalupe Zamora, M.D. “With expansion of the CHIP and Medicaid program, you’re going to see a lot more patients, especially children, switched over to Medicaid and CHIP.”

TAFP President Kaparaboyna Ashok Kumar, M.D., F.R.C.S., of San Antonio, agrees. “With the passage of federal health care reform and more patients coming onto the Medicaid rolls, we must expand physician participation or else patients won’t have access to care.”

The gathering storm

If history is any indication, these cuts will not be the last. The last time the state faced a budget deficit of this magnitude—during the infamous “slash-and-burn” session in 2003—legislators made drastic changes to the state safety net programs, changing eligibility and benefits, and causing hundreds of thousands of children to be dropped from the rolls. Some of the largest cuts of that session were made to physician payments for Medicaid and CHIP, which caused a drop in physician participation in the program. Looking toward the upcoming 82nd session, lawmakers will have many of the same tough choices to make that could have lasting effects on millions of Texans.

The way the budget works in Texas, the Legislature meets in the first five months of every odd-numbered year, and the only bill lawmakers must pass is a balanced budget for the following two fiscal years. The current budget for fiscal years 2010-2011 was written by the 81st Legislature in 2009, and the next budget for 2012-2013 will be written by the 82nd Legislature in 2011.

The projected budget shortfall stems largely from a yearlong slump in state sales tax and other revenue as the national recession weighed fully on Texas. Comptroller Susan Combs’ cash flow report for the first six months of fiscal 2010 showed sales tax down $1.2 billion from fiscal 2009, a decline of 12.4 percent. Considering that sales tax collections make up more than half of general revenue, the forecast for the remainder of this biennium and next looks bleak.

Further compounding the budget situation is explosive growth and increasing demand in the state’s health care safety net programs above what was budgeted last session. According to HHSC, Medicaid—the entitlement program that serves more than three million low-income children and parents, elderly, and people with disabilities—faces a shortfall of at least $1.3 billion to maintain current services. CHIP—the program that helps low-income families purchase health insurance for children under age 19 who are not covered by Medicaid—faces a shortfall of $72 million.

Medicaid caseloads increased 8 percent in the first six months of fiscal 2010 and HHSC officials expect to see 11 percent caseload growth for the year. Compare this to fiscal 2009 when the annual caseload trend was 4.4 percent, or to the three previous years when annual growth was below 2 percent.

The vast majority of Medicaid enrollees are children under age 19. In April 2010, HHSC preliminary reports showed enrollment in children’s Medicaid at just over two million, an increase of almost 300,000 from that report in April 2009. Including perinatal clients, total CHIP enrollment in April 2010 was 505,000, compared to 465,000 in April 2009.

Despite leadership’s instructions to exempt Medicaid and CHIP benefits and eligibility staff in the 2010 budget reduction, child health advocates haven’t dismissed the possibility that these programs may suffer in the 82nd Texas Legislative Session as legislators work to balance the 2012-2013 budget.

Rep. Garnet Coleman, D-Houston, has served in the Texas Legislature for the past two decades working to reduce the number of uninsured in Texas. He was a joint author of the bill to create the Children’s Health Insurance Program in Texas and has seen cuts to these programs before. “It doesn’t matter what is laid out in the budget instructions,” Coleman says. “Even though CHIP is supposedly carved out, that’s just in the beginning. We haven’t written the budget yet. Those are the instructions in building the budget, not in the final budget, and those are agency instructions, not legislative instructions.”

Back to the future

The fiscal situation for the 82nd session is eerily similar to the 78th in 2003. Due to the national economic recession and low sales tax revenue, a January 2003 estimate by then-Comptroller Carole Keeton Strayhorn projected a $7.4 billion shortfall in general revenue for the 2004-2005 biennium, leaving the state with about 12 percent less than the previous budget. One estimate by the Center for Public Policy Priorities, a nonprofit group that advocates for low- and moderate-income Texans, placed the deficit closer to $16 billion after accounting for inflation, population growth, and other nondiscretionary budget items.

The 2002-2003 budget had been balanced using a one-time carryover of $2.9 billion in general revenue from the previous biennium, and $1 billion in other general revenue that wouldn’t be available for legislators to use in the 2004-2005 budget. Caseload growth in Medicaid and CHIP above projected spending added a shortfall of $1.8 billion in fiscal 2003. One reprieve came from the Economic Stabilization Fund, the savings account fed by excess natural gas and oil tax revenue to be used in times of economic slowdowns. Also known as the rainy day fund, it contained nearly $1.3 billion.

Before legislators could begin writing the 2004-2005 budget, they had to address the shortfall in the 2002-2003 biennium. They used agency-submitted budget-reduction plans to cut general revenue spending by 7 percent. That totaled $1.4 billion in savings, largely taken from higher education, public education, public safety, criminal justice, and health and human services. Medicaid acute care services, CHIP, and the Foundation School Program were exempt.

Working under a new deficit estimate of $10 billion, legislators began writing the 2004-2005 budget. They trimmed $1 billion by shifting costs for certain state services onto its recipients, including higher co-pays for beneficiaries of state-subsidized health insurance, and higher tuition and fees for students at state universities. So-called “smoke-and-mirror” accounting adjustments took away another $1.2 billion and included payment delays and deferrals for state programs.

Not able to balance the budget with cuts alone, they generated $1.8 billion in new revenue by extending fees and taxes such as the Telecommunications Infrastructure Fund, a tax amnesty program, and by joining a multi-state lottery. The Legislature chose to appropriate the entire $1.3 billion rainy day fund, using $450 million to offset some of the fiscal 2003 CHIP and Medicaid shortfalls, and $811 million for retired teachers’ health care and the governor’s new Texas Enterprise Fund for economic development incentives in 2004-2005.

Finally, legislators sliced $7.5 billion in general revenue, with one bill cutting more than $900 million from Medicaid, CHIP, and other health and human services: House Bill 2292.

“Everybody remembers that as the bill that saved a billion dollars in reorganization, but it’s the bill that cut a billion dollars out of Medicaid and CHIP,” says Eva DeLuna Castro, senior budget analyst for CPPP.

In addition to consolidating 10 HHS agencies into three, H.B. 2292 made two major policy changes to eliminate CHIP coverage, and three eligibility changes to make it harder to maintain coverage and to discourage new enrollees. To eliminate coverage, H.B. 2292 removed income deductions for child care and child support, and imposed asset limits for children in families at or above 150 percent of the poverty line.

To make it more difficult to enroll and re-enroll, the bill implemented a 90-day waiting period for children to begin receiving care under CHIP, and increased CHIP premiums and cost-sharing. Then came the change to the enrollment period. DeLuna Castro says the previous Legislature planned to make the Medicaid enrollment period 12 continuous months like CHIP, rather than six months. Instead, “they postponed the plan to change Medicaid enrollment for children from one year and kept it at six months, and they cut CHIP to six months as well. So instead of making Medicaid as good as CHIP, they made CHIP as bad as Medicaid,” she says.

Separate state action gutted CHIP benefits, taking away dental care, vision care, and eyeglasses, and partially taking away mental health benefits.

In Medicaid, H.B. 2292 privatized asset tests and enacted Medicaid cost-sharing. It slashed adult Medicaid benefits, eliminating podiatry services, mental health benefits, vision benefits, and hearing aids. Parents of children enrolled in the medically needy “spend-down” program lost coverage completely.

Some of H.B. 2292’s deepest cuts struck payments to physicians who treat Medicaid and CHIP populations. The Legislature reduced payments to hospitals and doctors by 2.5 percent, nursing home providers by 1.75 percent, and community care providers by 1.1 percent, totaling nearly $600 million in cuts, according to CPPP. They would have doubled in 2005 if not for a last-minute influx of federal fiscal relief late in the 2003 session. The state used $840 million of the total $1.3 billion available to restore some, but not all, of the health and human services cuts.

Coleman says the decision to slash social service programs “comes down to priorities and philosophy,” arguing that combined funds from federal fiscal aid and the rainy day fund could have salvaged the $1 billion cut by H.B. 2292. “The cuts were unnecessary. Period.”

“I think we’re seeing now that there are people who don’t believe that government has a role in health care for children or for anyone else, quite frankly,” he says. “They used the $10 billion ‘shortfall’ as an excuse to make those cuts, then said that the dollars would come from savings through consolidation of agencies and privatization of our enrollment system when those cuts came from one place and one place only, and that’s the cutting of programs.”

DeLuna Castro says legislators will contest that they didn’t cut children from Medicaid, they simply made it harder for new children to get. “They’ll argue that throwing someone off a program is a cut. Preventing them from getting on it in the first place is just a policy decision. In the end, the kid doesn’t get Medicaid, so it’s splitting hairs as far as I’m concerned.”

Before the enrollment barriers began to take effect in September 2003, CHIP enrollment stood at more than 507,000. With the implementation of each new provision, caseloads declined accordingly. According to HHSC, the change from 12-month to six-month enrollment hit the hardest, dropping approximately 78,000 children from the rolls by January 2004. The stricter asset test caused an additional decline of 34,000 by September 2004. Caseloads continued to fall through 2005 and 2006, hitting a low of 291,000 in September 2006.

By the numbers, Medicaid fared much better than CHIP. Enrollment in children’s Medicaid in September 2003 was 1.8 million, and the program has grown steadily to the current total enrollment of 2.2 million. However, the latest poverty figures are from 2007, and show that a quarter of Texas children live in poverty. With the past few years of economic recession not yet counted, it’s safe to assume that these percentages have increased, further inflating the number of children eligible but not enrolled in Medicaid and CHIP. Experts estimate this population to be as high as 700,000 kids.

In 2007, the 80th Legislature reversed some of the damage inflicted in 2003. For CHIP, legislators restored 12-month continuous coverage, relaxed asset limits, and again allowed income deductions for child care expenses. By September 2009, 491,000 children were enrolled in CHIP. Though enrollment has not recovered fully to levels seen before the 2003 cuts, it has increased 68 percent from the low in September 2006.

The 80th Legislature also boosted Medicaid provider rates back to pre-2003 levels after years of stagnant payment. Today, this payment still lags far beneath the cost of providing care to these patients, and looking at the trends of physician participation in Medicaid, some fear that further cuts may drive physicians away from the program.

According to surveys conducted by the Texas Medical Association, only 38 percent of Texas physicians accepted new Medicaid patients in 2006, a decrease from 67 percent in 2000. After rate increases from the 2007 Legislature and the Frew v. Hawkins settlement, TMA’s 2008 survey showed an increase to 42 percent accepting new Medicaid patients, with much of the gains among physicians who treat children.

Results from the newest TMA survey aren’t yet available, but Helen Kent Davis, TMA director of governmental affairs, doesn’t hold much hope for another increase. “Since we haven’t had any additional rate increases since 2007, and many physician practices have been stressed by the Medicare payment situation, my hunch is that we’ll see a decline in participation.”

“The honest truth is that we haven’t had a pay raise in a decade or two,” Austin physician Zamora says. “So you see who you can, you do your best as far as providing services to those who are there in your neighborhood, those who you are seeing already, but it’s very difficult to be able to accept new patients.”

“Certainly, if the fees got so low we just could not keep our doors open, we’d have to stop seeing these patients completely. [We’d tell them] that we love taking care of them, that we love being their physician, but we just cannot run a deficit at our office. We have staff to pay.”

This message resonates with HHSC leadership and some legislators who understand how physician payment rates affect access to care. In a March 31 joint hearing of the Senate Committee on State Affairs and the Senate Committee on Health and Human Services, HHSC Executive Commissioner Tom Suehs testified that the state must make several policy decisions now in preparation for provisions of federal health care reform. He stressed several times that it would be difficult to expand Texas Medicaid without adequate reimbursement to primary care physicians and expect the newly eligible to have access to care.

Coleman says physician pay cuts in these programs are “not an option and shouldn’t be.” “The program doesn’t work if the providers are not paid the amount necessary to provide care and be a part of the Medicaid or CHIP program,” he says. “It doesn’t work if we don’t have people providing care at a rate where they can keep their offices open.”

As the 82nd Legislature writes the 2012-2013 budget, HHSC spokesperson Stephanie Goodman admits that there will be “competing pressures on rates.” Provider rates are the largest section that can be cut, the low-hanging fruit, along with benefits considered optional for adults.

“We know the budget is going to be very tight, but we also have the possibility of health reform on the horizon and huge growth in our Medicaid caseloads,” she says. “That means we’re going to need even more Medicaid providers, so keeping rates at a level that attracts providers to Medicaid will be very important.”

There will be differences between 2011 and 2003. Starting with the bad news, the state must account for a structural deficit of around $9 billion stemming from the way Texas pays for public education. The good news is that the rainy day fund is expected to have $9.6 billion available for the 2012-2013 budget cycle. Legislators looking past 2012-2013 will be hesitant to deplete the fund completely, but even a portion of the fund could fill some of the gap.

Another benefit is hindsight, allowing legislators to analyze the actions taken in the 78th Legislature and its repercussions. Coleman says that the majority of Texans believe that leaving children without health coverage is bad public policy, and this message will reach legislators next session. “That is the ending message,” he says. “If this next Legislature does the same thing as was done in 2003, then many of those folks can expect to not return who vote for a policy or put a policy together like that in this session. They will not be returning to the Texas House or Senate.”