For all the vitriol flowing from Texas after the Supreme Court upheld health reform, the ruling delivered a big mulligan to the state's Medicaid program. The court ruling made Medicaid expansion optional by permitting states to decline the expansion without sacrificing their existing Medicaid funding.

With an estimated 2 million Texans eligible for Medicaid on top of a $5 billion Medicaid funding gap in its current biennial budget, Texas won't be rushing to adopt the now-voluntary expansion.

Although Texas Medicaid serves more than 4 million people, adults face rigid eligibility restrictions and accounted for just 10 percent of enrollment in 2010 (state Health and Human Services presentation, May 2012). To qualify, they can earn no more than 26 percent of the federal poverty level, or $5,993. Healthy childless adults need not apply, because they can't. The aged, blind and disabled fare slightly better, with eligibility capped at 75 percent FPL ($8,378 for a single person).

Texas won't have to forfeit federal funds if it does not expand Medicaid eligibility to 133 percent of the federal poverty level ($30,656 for a family of four). But if the state does choose to participate in Medicaid expansion, HHSC estimates show that in the first year, the state could see 1.2 million newly eligible enrollees and 574,000 enrollees who were previously eligible but not enrolled. The federal government provides a 100 percent match for the first three years and eventually steps down to 90 percent.

With no progress on an exchange and no exchange subsidies in the law for the planned Medicaid expansion population, reform could bring little change for that population.

The effects will be felt broadly. MCOs had been aggressive when Texas rebid its managed care contracts and expanded managed Medicaid into rural regions. They positioned themselves for more lives in the 2014 Medicaid expansion but might not realize those gains if Texas stands pat.

Texas hospitals could also be left in the lurch. A Medicaid waiver saved hospitals from a major loss of Upper Payment Limit funding due to the managed care expansion. HHSC will now pool the money for Regional Healthcare Partnerships under which groups of hospitals and clinics will form medical homes for Medicaid members. The accountable care focus should improve care for existing members, but won't do much for those outside looking in, who will then still add to the hospitals indigent load.

Pressure from hospitals and providers could twist enough arms to get Texas to accept the expansion. But if they don't, Texas will be ground zero for passing on the Medicaid expansion.

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