in Houston, Texas

1 in 6 Texans get Medicaid health insurance program, whose costs in Texas are projected to grow $3 billion every year

Monday, Apr 11, 2011, 05:44AM CST
By Mark Lisheron

After nearly 20 years, the mixture of idealism, challenge, regret and frustration rushes back to DeAnn Friedholm.

DeAnn FriedholmFRIEDHOLM
Gov. Ann Richards had appointed Friedholm director of a Medicaid program in Texas that was $1.8 billion in the hole. Although she is credited with statewide reforms that solved her first budget crisis, Friedholm sounded a note of almost helpless dread familiar to that heard for the future of Medicaid today.

“What did I see then?” Friedholm asks herself. “I saw a system that was out of control, that was going to eat everything in its path.”

The federal entitlement program with the insatiable appetite that Friedholm took over in late 1992 ate a total of $6.3 billion that year. In those years the Medicaid budget grew by about $1 billion a year. By 2009, the Medicaid hunger in Texas had grown by nearly four times to $24.6 billion, gobbling up a little more than one in every four dollars in the state budget.

The Texas Department of Health and Human Services projects the annual feeding frenzy to grow by about $3 billion in each of the next two years. Even if the Legislature passed a more austere budget for 2011-12, the percentage of state spending devoted to the health insurance program for the poor is expected to increase, albeit more slowly.

Ask anyone familiar with health care in Texas, and they can tell you why the great white shark that is Medicaid cannot be stopped. Each will provide a glimpse of a solution based on their moral, political or professional point of view.

The perspectives differ, but there is consensus that Medicaid cannot be fixed by treating it as something separate from an American health care system including Medicare and private insurance that must also be changed fundamentally.
Medicaid as proportion of Texas state budget

And while passage of the Patient Protection and Affordable Care Act last year has complicated and politicized speculation on where Medicaid is going, the people who know their way around the issue say you first have to know where Medicaid went.

“I think the real question is what is it about our society and the health care system we have that puts these people into Medicaid,” says Friedholm, now the national health care reform director for the nonprofit Consumers Union in Austin. She makes no pretense of her advocacy for patients. “Medicaid is a reflection of the ills of our insurance system. Medicaid is a coverage of last resort.”

At the start, with the passage of one of President Lyndon Johnson’s sturdiest of Great Society platforms in 1965, Medicaid was to have been coverage of last resort for small groups of the least fortunate. Only people eligible for welfare and cash assistance, for a federal program now called Temporary Assistance for Needy Families or, in Texas, elderly or disabled people eligible for cash payments called Supplemental Security Income, could get Medicaid coverage.

Congress, however, has changed and expanded Medicaid no fewer than 30 times since then, most recently with the infusions of billions of dollars through the federal stimulus in 2009 and last year with the health care act.

For nearly 15 years Medicaid was largely the same as originally passed, an entitlement program requiring the states to provide without exception the coverage determined by Congress and to pay a share of the cost based on state per-capita income.

Then beginning in the 1980s, as outlined in the indispensable “Pink Book,” published by the Health and Human Services Commission, Congress began passing laws, nearly one every year, that required states to broaden and deepen coverage.
  • In 1984, Medicaid would now cover children whose low-income families did not receive direct federal cash assistance. Pregnant women and their infants would get covered.
  • In 1986, undocumented immigrants and the homeless would get emergency care through Medicaid.
  • In 1987, the federal government mandated sweeping nursing home reform.
  • In 1988, Congress passed the Medicare Catastrophic Coverage Act, an expansion of Medicaid to cover long-term care for the elderly and disabled not already covered by Medicare.
Stoked by federal fiat, the Medicaid caseload grew in Texas from about 750,000 in 1985 to 2.3 million a decade later. And after years of growth that could be counted in the millions, the Medicaid budget began growing first by $1 billion a year in 1991 from the year before. The $2 billion budget in 1987 grew to $9 billion in 1995.

By its nature, Medicare was a patchwork of modifications, further fragmented by implementation by 50 states and left to be carried out by doctors, hospitals and nursing homes, each comprising their own loose constituency.

“For better or for worse, we created this space where we systematically put all of our uninsurable people,” Anne Dunkelberg says.
Anne DunkelbergDUNKELBERG

Dunkelberg was in the delivery room for the birth of this modern Medicaid space in Texas. After doing health care policy work for the Texas Research League, which provided policy research to the Texas Legislature, Dunkelberg agreed to help Friedholm create the first Pink Book to help lawmakers understand Medicaid.

Now the health care specialist and associate director for the Center for Public Policy Priorities in Austin, Dunkelberg says that from the start Medicaid has been about good intentions, clumsily and sloppily carried out. Like her nonprofit, Dunkelberg is an advocate for those on the receiving end of federal benefits.

When asked if something might have been done differently in the 1980s when Medicaid really took off, Dunkelberg echoed what other health care experts said about the unwieldy and disjointed nature of the entire American health care system. Medicaid, she says, is very unlikely to be fixed on its own.

“Medicaid has become so expansive and so complicated that very few people understand it, much less understand what to do about it,” Dunkelberg says. “As an advocate you see Medicaid as a problem with a price you have to pay for. That doesn’t mean we can be full of shit about fiscal responsibility.”

Market plan rejected

Mike McKinney, now the chancellor of Texas A&M University, wasn’t willing to pay the price for a problem. Once the only doctor in the Texas Legislature, McKinney used his appointment by Gov. George W. Bush as Health and Human Services commissioner in 1995 to champion managed care, getting Medicaid patients enrolled with private health maintenance organizations (HMOs) to save money and improve accountability.
Mike McKinneyMcKINNEY

With cost increases slowing, McKinney outlined a plan to take the entire Medicaid system in Texas private.

While Texas embraced managed care, at a modest savings, health officials in the administration of President Bill Clinton rejected McKinney’s market Medicaid plan. A short time later, McKinney resigned.

“I’m still proud of the managed care plan, still think it was a battle worth fighting for,” McKinney says in a phone interview from his office in College Station. “I was trying to deal with a system that rewards you for volume. I wanted people to be rewarded for preventing health problems, not rewarded for doing unncessary things.”

As a member of the powerful House Ways and Means and Appropriations committees, McKinney said he learned how the state got its money and spent it. As the head of Health and Human Services, he says he learned the federal and state governments were partners in a system detached from the reality of finances.

“People, patients and physicians, don’t know what anything costs,” McKinney says. “It’s a system where nobody wants to say no and nobody wants to be told no.”

As if to provide proof, the Legislature in 2001 simplified the rules for Medicaid eligibility and allowed for a continuous six-month eligibility for children. Not coincidentally did enrollment begin a fairly steady decade-long climb to the 4 million -- or nearly one in six -- Texans who received some kind of Medicaid benefit in 2009, according to Health and Human Services. Medicaid spending shot up $2 billion, from $12.3 billion in 2001 to $14.3 billion a year later.

Medicaid Budget in Texas

Added to a Medicaid growth rate churning past $3 billion a year, Legislatures in Texas and across the country are guessing in a kind of institutionalized panic what the cost will be for adding those included in the federal Affordable Care Act. The act broadens Medicaid to include all individuals and families with incomes up to 133 percent of the poverty level -- $29,726 for a family of four -- which will add an estimated 32 million new clients to the rolls by 2019, according to the Congressional Budget Office.

One scenario outlined in a study by the libertarian Texas Public Policy Foundation, vigorously disputed by political opponents, has Medicaid rolls swelling by the millions, its budget ballooning by billions and the state being bankrupted.

Embedded in those estimates is what John Holcomb calls Medicaid’s dirty little secret. Holcomb, a pulmonary specialist and chairman of the Medicaid committee for the Texas Medical Association, has been part of an American medical revolution that has seen bypasses and transplants become routine and wonder drugs killing things that once killed patients.

Texans are living longer, and the more who live longer, the greater the burden on Medicaid. Although they account for the smallest and most stable client base, the old, the disabled and the blind account for almost 60 percent of the nearly $20 billion spent on client services in 2009, according to the Health and Human Services Department.

“What we have here is a societal problem, having to decide whether to spend money on hearing tests for a 3-year-old or using some experimental drug to keep some 88-year-old alive,” Holcomb says. “We have a generation of people whose parents are in some sort of long-term care. Are we going to tell some guy that he’s going to have to lose his man cave because his mother in the nursing home has to move in with him?”

Holcomb, obviously, is in the doctor advocacy business. Still, he is blunt about the waste and fraud that Medicaid invites. None of the constituencies in the provider world - doctors, hospitals, the drug industry - seem anxious to work for a more transparent and accountable system.

Neither are doctors as willing to have the artificially low fees they are paid through Medicaid whittled further during budget years like this one, Holcomb says. “In 2000, 67 percent of doctors in Texas were willing to see Medicaid patients,” he says. “Today that figure is about 40 percent.”

Push for state control

Some groups, like the Texas Hospital Association, see salvation in incremental free-market reforms. John Hawkins, vice president for government relations with the association, says he thinks that rather than expanding Medicaid through the Affordable Care Act the federal government should have ceded some authority to the states to implement market reforms.

Those free-market ideas have taken two forms in House Bill 5 by Rep. Lois Kolkhorst, R-Brenham, and Senate Bills 7 and 8 by Sen. Jane Nelson, R-Flower Mound. Kolkhorst’s bill calls for Texas to join in a compact with other states to wrest control of their Medicaid systems from the federal government. Nelson’s is a more restrained call for changes that would reward doctors for the quality rather than the volume of their treatment.

These bills may or may not benefit from the residual bitterness over passage of the Affordable Care Act and the role of the tea parties in shaping the debates.
Arlene WohlgemuthWOHLGEMUTH

Arlene Wohlgemuth, director of the Center for Health Care Policy at the Public Policy Foundation, says the Obama administration blundered by fattening an entitlement program that most people recognize as unsustainable with incentives for everyone involved.

“The whole system is rife with perverse incentives because it is founded on perverse principles,” Wohlgemuth says. “Medicaid is so intertwined with our health care system, services so many special interests, and has so many people dependent on it that it is a political minefield. The question is not can we reform Medicaid, it is do we reform it before or after it goes bankrupt?”

Friedholm does not disagree. She says Medicaid ought not be argued ideologically, but knows it will be anyway. She worries that the questions Wohlgemuth and others are asking sidestep a tough truth about Medicaid.

“We have to face the fact that health care, all of our health care, is out of control, and what are we going to do about it?” Friedholm says. “Fifty years ago people died. People with leukemia, cerebral palsy, old people died. They’re living today. What are we going to do to take care of them?”
Contact Mark Lisheron at 512-299-2318 or

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Joyce Luster
Monday, 04/11/2011 - 08:35AM

You left out one of the most important components of the rise in Medicaid--illegal immigrants. Why should elderly American citizens have to come second to non-citizen children in our country?

Mark Lisheron
Monday, 04/11/2011 - 10:28AM


Thanks for taking the time to write. Undocumented immigrants were included in 1986.

See bullet point number two high up in the story.


Griff Lisch
Tuesday, 04/12/2011 - 08:56PM

I must say the evidence is astounding. What is more astounding is the reactions to the evidence. Strewn throughout this article are reputable sources who acknowledge with certainty that medicaid is a ticking time bomb, yet neither media or politicians are treating it as such. They are treating it exactly as Wohlgemuth said, like a minefield. Well minefields are fine as long as you don't mess with them. Bomb's go off regardless. Therefore, I think it would be wise for both media and politicians too look a little carefully at the timer.

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