Under Biden, CMS Cancels Trump’s Late Extension of Texas Medicaid Waiver

The Biden administration moved late Friday to reverse a January extension for Texas’ Medicaid program, saying that CMS officials “materially erred” in allowing the $100 billion approval that would have pushed the largest waiver of its kind into the next decade.

In the letter, which was obtained by The Washington Post, CMS’ Acting Administrator Elizabeth Richter said that extending the waiver allowed Texas to bypass the federal rulemaking process, thus depriving “beneficiaries and other interested stakeholders” the chance to weigh in on the future of Texas’ Medicaid program. The waiver covered both funding to hospitals for uncompensated care and innovation projects; the latter were set to expire later this year.

Reaction from Texas Governor Greg Abbott, a Republican, was swift and harsh.

“By rescinding this waiver extension, the Biden administration is obstructing healthcare access for vulnerable Texans and taking away crucial resources for rural hospitals in Texas,” Abbott said in a statement. “The state of Texas spent months negotiating this agreement with the federal government to ensure vital funds for hospitals, nursing homes, and mental health resources for Texans who are uninsured. With this action, the Biden administration is deliberately betraying Texans who depend on the resources made possible through this waiver.”

The action was seen as the stick finally coming down on Medicaid expansion, following the administration’s offer of financial carrots to the 12 states that have refused to extend coverage of those earning up to 138% of the federal poverty level. About 2 million people are estimated to be in the “coverage gap,” which means they earn too much to qualify for their state’s Medicaid program, but not enough to qualify for premium tax credits under the Affordable Care Act (ACA). One-third of this group lives in Texas, according to a Kaiser Family Foundation analysis.

Texas’ January 15, 2021, extension was one of three such waivers granted in the Trump administration’s final days, allowing the state to continue to use federal funds for an uncompensated care pool, thus side-stepping the ACA’s preference for expanding Medicaid coverage. The other two waivers were granted to Florida and Tennessee.

Uncompensated care waivers were approved by CMS under the Obama administration after 2011, when hospitals still needed funding to cover the cost of caring for the uninsured but before the full ACA had taken full effect. The law viewed them a stop gap until the working poor could gain access to healthcare coverage under Medicaid expansion. However, once the Supreme Court allowed states to opt out of expansion, the waivers remained.

A commentary published Friday by The Commonwealth Fund, hours before the Texas letter was released, argues that extending these waivers another 10 years “could shape the Medicaid programs in these three states for the next decade,” while denying coverage for up to 1.3 million people.

Paying hospitals to care for the uninsured is justified for these institutions, writes Cindy Mann, a partner at Manatt Health, but paying for acute care in the emergency room on an inpatient visit “is no substitute for coverage that provides access to primary and preventive care,” she writes. Too many poor people end up in the emergency room because they lack access to diagnostic tests or prescription drugs that would manage chronic conditions like heart disease or diabetes. Over the long run, lack of preventive care for chronic disease is more costly to Medicare once these adults reach age 65.

“For this reason, hospitals themselves have continued to press for Medicaid expansion,” Mann writes.

In addition, she said, that directing federal funds for uncompensated care instead of Medicaid expansion results in higher spending. In the three states granted late waivers, she writes, the extensions would result in an additional $17 billion in spending, including $12 billion in federal funds.

For these reasons, the Biden administration included in its American Rescue Plan additional financial incentives for the 12 holdout states to expand Medicaid, as well as a specific incentive to encourage states to extend postpartum care to a full year after childbirth instead of 60 days, to address high rates of maternal mortality, particularly among minority women.

So far, however, the administration has found lawmakers in some Republican states are not enticed by the additional funds. Mississippi, for example, could only get the expansion on postpartum care through its state Senate, not the House. However, a state Medicaid official said the extension may happen administratively through 2021.

Regardless of hospitals' overall support for Medicaid expansion, the sudden about-face on the waiver—and its potential effect on safety net funding—did not go over well with Texas Hospital Association, which released a statement late Friday.

“The Texas Hospital Association is extremely disappointed by today’s action by CMS to abruptly rescind the previously approved waiver extension for Texas. With an ongoing pandemic and millions of uninsured Texans, Texas hospitals have been stretched like never before and clearly have a critical role in protecting the health and wellbeing of all Texans,” the statement said.

“This action undermines the safety net and hospitals’ ability to protect people. It puts the state’s health at serious risk and creates unprecedented levels of uncertainty for an industry that is charged with saving lives. The waiver extension would have helped the state to seamlessly continue support for much-needed health care improvements and would have continued stable funding for hospitals that serve large numbers of uninsured patients.”