Texas just got an offer it might not be able to refuse.
Ten public hospitals have told the state they will put up $130 million to help it tap into $40 billion of federal money being made available for children's healthcare coverage. With the hospitals' money, Texas will get an additional $500 million from the feds to help cover uninsured children in 1998.
Otherwise, its children's healthcare plan probably won't float. Like other states, Texas won't get any dough from the feds unless it kicks in at least some of its own. Unfortunately, Texas officials say they've found only $11 million so far that could be freed up from other healthcare programs. And the state Legislature can't set aside more funds until it meets again in 1999.
As attractive as the hospitals' offer sounds, it has a catch: The hospitals want an exclusive on the new business. For their $130 million, they would get Texas' 1.3 million uninsured children enrolled in their HMOs.
It's not competing hospitals that could sink the deal; it's local governments unhappy about turning their own money over to the state.
"It would be too self-serving to fight over who gets control," says Joe DaSilva, senior vice president of public affairs for the THA, the Association of Texas Hospitals and Health Care Organizations.
The association is among several organizations calling on the Legislature to appropriate the necessary money. If not, the groups say in a letter, "Texas' opportunities for building an innovative, flexible program are extremely limited."
Texas isn't the only state that has a children's healthcare plan with an uncertain fate. Not only are states worrying about how to come up with the money, but they're also wondering what program structures will produce the least administrative mess.
Central questions. "The real center of the debate is, `Do you just expand Medicaid (to cover more children) or do you create a separate state program?' " says John Hurson, the Democratic leader of the Maryland House of Delegates.
Compounding the problem of getting such efforts off the ground is the fact that most Americans, particularly the parents of uninsured children, aren't aware of the program and might not take advantage of the new money.
The federal balanced-budget act, which was passed last summer, authorized the creation of the state Children's Health Insurance Program, or CHIP, and set aside federal money to fund it. The program targets children who come from families too poor to buy health insurance but not poor enough for Medicaid. According to the Census Bureau, 10.6 million children did not have health insurance coverage in 1996.
Congress authorized $39.7 billion over the next 10 years for the program. A key element of its financing is a 10-cents-per-pack cigarette tax, which will increase to 15 cents in 2002.
State house rush. As state legislatures convene from coast to coast this winter and spring, one of their top priorities will be drafting and enacting CHIP insurance or Medicaid expansion plans. As of mid-January, 34 states hadn't submitted plans to HCFA and of those only New Jersey has actually taken administrative steps enabling it to enact the law once it submits a plan (See chart, p. 46).
"(CHIP) will be a big issue in this state's legislative session," says David Hewett, president of the South Dakota Association of Healthcare Organizations. South Dakota's governor, William Janklow, has proposed expanding Medicaid eligibility to cover 7,400 more children.
Adds Ron Pollack, executive director of Families USA, a healthcare consumer group that lobbied for a children's healthcare program: "Most of the key decisions will be made in the spring, when the state legislatures are in session. There will be a lot of debate in the next few months."
That debate might continue even in states that have submitted plans to qualify for the federal funding, Pollack says. He characterizes some of the plans as "place holders," submitted under the assumption that legislators will outline a further extension of healthcare coverage in their spring sessions.
Besides funding, state legislators have one fundamental question to answer: Expand Medicaid or start a new program?
Already states have different answers. Of those that have submitted plans to HCFA, 10 plan to create a separate state insurance program, sometimes in combination with a Medicaid expansion. Six states -- Illinois, Missouri, Ohio, Oklahoma, South Carolina and Tennessee -- have chosen to do their work through a Medicaid expansion only.
Good arguments exist for both options.
The beauty of Medicaid. On the side of Medicaid expansion is simplicity. Using existing Medicaid programs, states would avoid creating a new bureaucracy to administer coverage of children just above the Medicaid threshold.
What's more, expanding the Medicaid program would mean children now served by the program wouldn't have to change plans if their family incomes rise above the requirement for Medicaid eligibility.
"A key priority has been trying to make sure we don't create excessive administrative headaches," Pollack says.
Furthermore, by adding children to their Medicaid rolls, states can improve their negotiating positions with health plans and providers bidding to provide care.
For some states, getting additional Medicaid money won't even require major changes in their program. Current law requires states to open up their Medicaid programs in phases to children ages 14 to 18 in families earning less than the federal poverty threshold. States must complete the expansion by 2002, but many states already have done so.
The 23 states that haven't can qualify for federal CHIP money simply by accelerating the required expansion. So far, three of the six states proposing combination plans will qualify partly by accelerating the eligibility for children ages 14 to 18.
Alabama, for instance, has submitted a plan to HCFA that consists of an immediate expansion of Medicaid coverage to children ages 14 to 19 in families earning less than the federal poverty threshold. Phase two of the plan, which has not been submitted to HCFA, would reach more children through a subsidized private health insurance program. The second phase includes a state insurance program, but details are still to come.
Pushing for separation. Proponents of separate children's health insurance plans say creating a new program doesn't necessarily mean complicating its administration. For example, the same agency could oversee both the Medicaid program and the CHIP plan.
That will be the case in Arizona. It plans to create a separate state insurance program for children but manage the program through its existing Medicaid administration, the Arizona Health Care Cost Containment System, which will buy insurance for the children.
"By using AHCCCS, we're not reinventing the wheel here because it's already been a successful program," says Brady Chatfield, communications director for the Arizona Hospital and Healthcare Association. "From a logistical and administrative standpoint, we've got a lot of work done."
Advocates of new state programs argue that Medicaid expansions will tie states' hands. States that put the newly covered population under their Medicaid programs are required under federal law to provide a costly comprehensive benefits package and will not be able to fashion a program meeting their specific needs.
"States have been struggling for years to get out from under federal Medicaid requirements," says Carrie Gavora, a health policy analyst with the Heritage Foundation in Washington.
If states simply expand Medicaid, "you're going to forfeit coverage for more children by giving fewer children a very expansive benefits package," Gavora says.
Arkansas is one state concerned about proposing a Medicaid expansion for just that reason, says Paul Cunningham, senior vice president of the Arkansas Hospital Association. "Once you take the king's dollar, you're the king's man," he warns.
New state programs could have greater flexibility to target specific populations or problems. They are allowed to offer a benefits package that equals that of the biggest HMO in the state, the state's own employee health plan or the Blue Cross and Blue Shield PPO for federal employees.
Starting from scratch. On the other hand, it might be difficult for states to start insurance programs from scratch, says Molly Collins, senior associate policy director for the American Hospital Association.
Ten states have submitted plans to HCFA including subsidized state insurance programs, either alone or in combination with Medicaid. Three of those -- Florida, New York and Pennsylvania -- use existing subsidized insurance programs that were grandfathered under provisions of the balanced-budget act.
The problems of starting a brand-new program could drive other states to the Medicaid expansion route, Collins says.
"For those states that don't have a subsidized insurance program, there are some start-up costs," Collins says. "Medicaid becomes more attractive."
Of greater concern to many children's advocates is ensuring that eligible children enroll in whatever program is offered.
About 3 million uninsured children are estimated to be eligible for Medicaid but not enrolled.
Public unawareness. Although the balanced-budget act allows states to use up to 10% of their total children's healthcare expenditures for administration, outreach and direct purchase of healthcare services, advocates still are apprehensive about enrollment.
That's because few people know of the CHIP programs, and awareness is even lower among parents whose children are uninsured.
A recent poll conducted by Harvard University, the University of Maryland and the Robert Wood Johnson Foundation found that only 29% of parents know the federal government has enacted a children's healthcare coverage initiative. Among parents with uninsured children, only 26% know of the federal program.
"If this remains a well-kept secret . . . kids won't get coverage because their parents won't know about it," says Edward Howard, executive vice president of the Alliance for Health Reform.
Kenneth Thorpe, a Tulane University health policy professor and former deputy assistant HHS secretary, says such figures are more alarming when examined in context of why children are uninsured.
Thorpe says many children eligible for Medicaid are not enrolled because their families have lost eligibility for cash assistance as states transform their welfare program. That means they are no longer going through periodic certification of financial need with state officers and, as a result, don't sign up for Medicaid.
In fact, Thorpe says Census Bureau figures show that between 1995 and 1996, the number of children who are Medicaid-eligible but still uninsured increased by 1.8 million, while the number of non-Medicaid-eligible children who were uninsured shrank by 1 million.
Thorpe says those statistics show that "unless the states are aggressive and active in identifying and enrolling (children), this program isn't going to work as well as everyone hopes."
Hurson, the Maryland House's Democratic leader, points out the dangers of poor public awareness. Maryland already has expanded eligibility for Medicaid-covered preventive services to 90,000 children with family incomes between 100% and 185% of the poverty level. But the actual enrollment has been only 4,500.
Hurson says Medicaid expansion taught the state a lesson: "I think we're going to be reluctant to just expand Medicaid without the bells and whistles to make sure eligible people enroll."
Nitty gritty. States, meanwhile, are battling with the government over specifics.
Arkansas, for example, wants the federal dollars -- but on its own terms if possible, says Roy Jeffus, assistant director of the Arkansas Medicaid program.
Instead of expanding its Medicaid program under federal guidelines, it hopes to persuade HCFA to accept an existing state program that expands Medicaid coverage to children in families earning up to twice the federal poverty level. The Arkansas plan conflicts with federal requirements by imposing copayments for children with family incomes between 100% and 200% of poverty. Federal rules generally don't allow copayments on enrollees with family incomes below 150% of poverty.
Arkansas also wants to enroll the children of state employees who are below certain income thresholds, which the federal program does not allow.
If it can't persuade HCFA to grant a waiver for its program, the state will develop an alternative plan, Jeffus says. "We don't want to leave money on the table," he says. "(But) we've got a good program that's already functioning here."
Some providers, however, are worried by the continuing negotiations, says Cunningham of the Arkansas Hospital Association. "I'm sure a good number of our members would like to see additional dollars coming in," he says.
Texas wrangling. Texas, meanwhile, has not even begun to answer the question of whether to expand Medicaid or start a subsidized insurance program as it wrangles over financing.
And it does not appear to have many alternatives to the public hospitals' proposal.
"We've concentrated our efforts on this because it's real . . . and it's a viable option for the state," says Charles Stuart, spokesman for the Texas Health and Human Services Commission.
Yet the relationship between state and local authorities might prove a big hurdle. The hospitals' proposal envisions regional HMOs, sometimes encompassing 50 or 60 counties. But local officials might impede such a broad use of tax revenues from local or county public hospital districts.
That's why hospitals, even the 10 behind the current proposal, believe the state is the best source of the money.
"It's not an issue of control," says King Hillier, director of government relations and special projects for the Harris County Hospital District in Houston. "We feel the appropriate public policy is for the state to put up the money, not the county entities. If we can get the Legislature to appropriate the dollars, we will pull back."