As state and federal legislators continue to contemplate proposed funding cuts that could negatively impact Medicaid, and thus, patients’ access to care, the Texas Medical Association is here to help Texas physicians understand and navigate the program’s funding complexities.
Medicaid is a joint federal and state program that, alongside the Children’s Health Insurance Program (CHIP), provides health coverage to over 79 million Americans – including 4.3 million Texans, per the Texas Health and Human Services Commission (HHSC).
According to HHSC, as of June 2024:
- 43% of Texas children are covered by Medicaid or CHIP, which pay for services like routine checkups, vaccinations, doctor visits and hospital stays;
- 53% of all Texas births are paid for by Medicaid, which covers pregnant women for prenatal care and for 12 months postpartum;
- 55% of Texas’ Medicaid spending goes to helping disabled or older patients on Medicare afford services that allow them to live independently in community settings, outside of nursing homes and state-run hospitals, or to cover services for those with disabilities or complex medical needs;
- 56% of Texas nursing home residents rely on Medicaid, which remains the largest funder of long-term care for disabled and older Texans.
Funding streams
According to KFF, Medicaid financing is shared by both states and the federal government, with the federal government required to provide matching payments to states with a no-cap limit – known as the federal medical assistance percentage, (FMAP).
The FMAP varies across states per capita income, for specific services and types of patients, and depending on whether the costs are for medical care or program administration. The federal government must pitch in at least half of what states contribute but can provide a higher match rate for states with lower average per capita income. For Texas, the federal government currently provides approximately 59.8% in matching funds.
States must meet core federal requirements to participate in Medicaid and receive federal matching dollars, such as providing certain mandatory benefits – like hospital, physician, and nursing home services – to certain patient populations, such as those with disabilities and people aged 65 and older, without waiting lists or enrollment caps.
Furthermore, states can receive federal matching funds to cover “optional” services, like dental care, for groups of people with income above the limits established for core populations, per KFF.
Medicaid also provides “disproportionate share hospital” payments to hospitals that serve a large population of Medicaid, low-income, and uninsured patients to offset hospitals’ uncompensated care costs. Per KFF, states can determine how they will deliver and pay for care for Medicaid patients. In this regard, managed care is the dominant delivery system, a health care model centered on reducing costs, while keeping quality of care high, often limited to health care professionals in a small local network.
The latest national Medicaid managed care enrollment data from 2022 show 75% of Medicaid patients were enrolled in comprehensive managed care organizations (MCOs). According to HHSC, only 3% of Texas Medicaid patients are in fee-for-service arrangements, while 97% are enrolled in MCOs.
State and federal payments made to MCOs accounted for about 52% of total Medicaid spending in 2023, per KFF.
To help finance a state’s contribution to Medicaid, every state except Alaska can generate additional Medicaid funding via non-federal collections – for example, “provider taxes” placed upon businesses like public hospitals, and intergovernmental transfers between state and local entities to support public funding. States can use the revenue from provider taxes to offset shortfalls in Medicaid, such as by supplementing physician payment to keep pace with increased health care costs. Cynthia Peacock, MD, a member of TMA’s Committee on Medicaid, CHIP and the Uninsured, says by doing so, “sorely underfunded” physicians can receive fair payment for their work.
However, a 2021 study by researchers from the U.S. Bureau of Economic Analysis, the University of Chicago, and the Federal Reserve Bank in San Francisco found physicians run into more administrative obstacles when billing for Medicaid than they do with other insurers, and that these challenges – alongside potential cuts to payment rates – often reduce patients’ access to care.
All states must provide a nonfederal share of Medicaid funding to receive federal matching funds, and in Texas, locally derived funds are used to finance the majority of the state’s contribution to Medicaid. In 2023, $12 billion in Texas Medicaid funding was raised in part due to these contributions.
Dr. Peacock says Medicaid’s financing structure also allows federal funding to grow or decrease based on need, such as during emergencies like the COVID-19 pandemic or after natural disasters. States also can utilize waivers under Section 1115 of the Social Security Act, which waive certain federal Medicaid requirements and provide Medicaid matching funds for use outside the normally allowed parameters. This gives states flexibility to design and improve their Medicaid and CHIP programs.
“Waivers are a way to establish the care your patients need,” Dr. Peacock said. “A waiver may be temporary, but the hope is that through it, physicians can establish care that then becomes accepted as necessary.”
For example, in 2023, TMA was instrumental in passing legislation to secure a Texas Medicaid waiver under Section 1115, extending postpartum coverage for women from two months to one year. And another TMA-backed Section 1115 waiver, or “demonstration,” which funds the Healthy Texas Women program to offer women’s health and family planning services at no cost to eligible women in Texas, was recently extended by the Centers for Medicare & Medicaid Services (CMS).
The demonstration is now set to expire on June 30. The funding it enables is achieved through a state budget item to pull down federal funding in the absence of traditional Medicaid expansion in Texas. Without this waiver, Texas would have to make up over $200 million to support the program’s current services per year.
Advocacy in action
In February, TMA, along with 49 other state medical societies, plus the District of Columbia, called for Congress to safeguard Medicaid against proposed cuts in the budget resolution recently passed by the U.S. House of Representatives.
The Feb. 27 letter, addressing concern this level of budget cuts would adversely impact Medicaid, called the program “the safety net for our most vulnerable patients.”
As the 2025 Texas legislative session continues, TMA continues to fight to improve coverage for under- and uninsured Texans and to help physicians expand their ability to care for Medicaid patients with healthier payment rates.
On top of maintaining the 6% increase secured during the 2023 session for an array of pediatric, maternal, and labor and delivery services – and fighting for the inclusion of related specialty care left behind, such as anesthesia – TMA continues to seek an additional payment increase in Medicaid across the board. As of this writing the Texas state budget included a medicine-friendly amendment with a 5% Medicaid rate increase for physicians in health professional shortage areas.
TMA will continue to monitor legislation both in Washington and at the Texas Capitol that impacts Medicaid programs. Learn more about TMA’s role in national advocacy and read Texas Medicine Today for updates.