TEXAS LEGISLATOR TESTIFIES ON MEDICAID FINANCING.

FINANCING MEDICAID THROUGH PROVIDER TAXES, VOLUNTARY CONTRIBUTIONS, AND INTERGOVERNMENTAL TRANSFERS

October 16, 1991

Mr. Chairman and Distinguished Members of the Subcommittee:

On behalf of the Texas State Senate, where I serve as chairman of the Health and Human Services Committee, and as a member of the Health Committee of the National Conference of State Legislatures, I respectfully submit this statement on the use of provider taxes, voluntary contributions and intergovernmental transfers in the Medicaid program.

The Texas Medicaid program is not considered to be generous in anyone's estimation -- not by the federal government, not by the state government, not by health care providers, not by the recipients of services, and certainly not by the citizens of our State whose incomes are slightly above our income eligibility guidelines but are not adequate to provide basic health care for themselves or their families.

We are pleased to report that the 72nd Texas Legislature earlier this year increased Medicaid coverage for pregnant women and infants to 185% of poverty, going beyond the federal mandate of 133% of poverty. Additionally, we eliminated the assets test for pregnant women as the last southern state to do so. We also adjusted the reimbursement for providers under the Early Periodic Diagnosis Screening and Treatment (EPSDT) program to improve access to services for poor children and to meet federal standards for provider participation.

In spite of the significant expansions we have made in Medicaid coverage over the past few years, there are still approximately three million Texans who have no health insurance whatsoever and one million of them are children. It is estimated that an additional 3.5 million are "underinsured." Approximately one-third of all uninsured births in the nation are in Texas. These statistics, when coupled with the fact that Texas also leads the nation in hospital closures, clearly demonstrates why access to health care for low-income Texans is in critical condition.

Now, we are threatened with the potential loss of approximately $800 million in federal disproportionate share funds under proposed changes in Medicaid regulations. Certainly, other states will be drastically affected if these regulations are implemented, but none more so than Texas.

Contrary to what some may believe, public hospitals in Texas are funded primarily through local property tax revenues. In 1989, our three largest public hospitals in Dallas, San Antonio, and Houston received less than 13% of their total operating revenues from Medicaid while public hospital in other states received almost twice that amount. Overall, our public and non-profit hospitals statewide provided around $2 billion in uncompensated care during the same time period.

Apparently, the federal government recognized the importance of assisting those hospitals which provide a disproportionate amount of uncompensated care to poor, uninsured and underinsured Americans with the creation of opportunities for enhancing payments to them under the Medicaid program. In Texas, we began using local funds on a very limited basis for our disproportionate share program in 1989 and made further expansions this year, carefully drafting our legislation to ensure we were meeting the goals and requirements of federal law.

The proposed rules raise more questions than they answer. They must be withdrawn and revised by a joint effort of state and federal officials, including Congress, to clearly address any abuses of the program which may be occurring -- but not at the expense of legitimate means for the states to raise revenues to fund the program.

An example is Texas' use of local hospital district taxes. These are local ad valorem property taxes used to fund part of our disproportionate share program. Hospital districts are required to transfer a portion of these revenues to the state for this purpose. This is not a "scam." It simply reflects the way our state and local governments have chosen to share the responsibility for providing health care to low-income residents of our counties and state.

What is deeply troubling to state officials is the apparent strategy the Office of Management and Budget (OMB) and the Health Care Financing Administration (HCFA) are pursuing to deal with each state on a case-by-case basis. This is absolutely unacceptable. The integrity of the Medicaid state-federal partnership cannot be left to arbitrary and capricious rulings made by bureaucrats with one motive -- to shut down certain states' revenue sources for these vital services.

We strongly oppose these attempts to supersede federal law with regulations which would have the effect of eliminating or restricting the authority of the states to use intergovernmental transfers or special provider-based taxes. You must act to bring some clarity and reason to this problem. During the Annual Meeting of the National Conference of State Legislatures, a policy statement on voluntary contributions and provider-specific taxes was adopted. I respectfully ask that the NCSL policy be included in the record of this hearing.

Medicaid costs in the United States are increasing at twice the rate of inflation for other goods and services. This has contributed to the significant increases in Medicaid expenditures for the states and the federal government and has also had a tremendous impact on local taxpayers. It is understandable for federal officials to examine ways to contain costs, but the proposed regulations have nothing to do with health care cost containment. The medical services will still be provided but the total burden will be borne by states and local governments.

I assure you we in Texas are equally concerned about escalating Medicaid costs and health care costs in general. Under the leadership of Governor Ann Richards, Lieutenant Governor Bob Bullock and House Speaker Gib Lewis, our state will be conducting a major study on health care access and affordability during the next year in an attempt to address these problems as best we can for the citizens of our state. But, the overall solution to these complex problems will require the participation and cooperation of all levels of government. We stand ready to work with you.

NATIONAL CONFERENCE OF STATE LEGISLATURES

OFFICIAL POLICY

VOLUNTARY CONTRIBUTIONS AND PROVIDER-SPECIFIC TAXES OR ASSESSMENTS

The Health Care Finance Administration is considering regulations that would reduce or eliminate the ability of states to obtain Medicaid Federal Financial Participation for revenues generated from provider specific assessments or taxes, voluntary contributions, and intergovernmental transfers.

Congress enacted provisions in Section 4701(b)(1) of the Omnibus Budget Reconciliation Act of 1990 which specifically protects the use of provider-specific taxes or assessments to obtain Medicaid Federal Financial Participation; and these provisions of the Omnibus Budget Reconciliation Act of 1990 are consistent with the powers and duties reserved for the states under the Constitution of the United States, and the spirit of the longstanding partnership of the federal and state governments in financing and managing the Medicaid Program.

The National Conference of State Legislatures calls upon the President, Secretary of the Department of Health and Human Services, Director of the Office of Management and Budget and Administrator of the Health Care Financing Administration to consult with states on any proposed restriction of the rights of states to raise revenue, to use voluntary contributions, or make intergovernmental transfers to match federal Medicaid funds.

The National Conference of State Legislators calls upon Congress to enact Legislation to enforce the provisions of Section 4701(b)(1) of the Omnibus Budget Reconciliation Act of 1990 and to permit states to continue to use voluntary contributions, provider-specific taxes or assessments and intergovernmental transfers.

NCSL also calls upon the HCFA to consult with states on any proposed changes in the Medicaid disproportionate share program.

August 1991