Health Coverage Policy Explorer: Methodology


To learn about the methodology involved in all aspects of our model and the details of the underlying assumptions, please refer to our combined methodology document (available to view or download by clicking on the document image to the right).

In addition, below we have summarized the anticipated budget impacts of our baseline Medicaid Expansion model into a ledger style format that we hope is easier to read and understand.  Some of the concepts can be difficult to convey accurately, especially in a condensed, summarized version.  If any aspect of the summarized “ledger” version below is unclear, please refer to the more detailed PDF methodology document.

Health Coverage Policy Explorer Methodology
[$6.56B (All Funds) * 10%] + $3M = $659M
The per-member-per-month (pmpm) cost baseline is $467 the first year of the expansion (2023), based on cost forecasts for Medicaid Temporary Assistance for Needy Families (TANF) Adults, with pregnancy costs removed. The baseline costs for subsequent years are increased following the HHSC 2020 Legislative Appropriation Request (LAR) forecast trends. The baseline cost for 2025 is $492 pmpm.

The user may input a different pmpm cost for the first year (subsequent years will be calculated using the same forecasted trend as above).  The range for user selection is from $425 – $600.  There is more room on the upside estimate to account for potentially increased costs should provider rates need to be increased in order to ensure adequate provider participation for the newly covered.

The pent-up demand for the first year is set at 16 percent, based information from Centers for Medicare and Medicaid Services, Office of the Actuary, Actuarial Reports 2016, 2017. States show varying levels of increase for pent-up demand.. Pent-up demand could go as high as 27 percent in some states, but given the cost containment policies in Texas, a lower demand was assumed.

The user may choose a range for the pent-up demand from 10 percent to 25 percent for the first year. The initial pent-up demand percentage will reduce by half each of the next two years, and stabilizes to the  rate  4% in year three (2025).  Stabilizing increased demand at 4.0 percent for the period of the estimate is done to provide an overall balance based on data reported by Avalere Health showing that health care needs of the expansion population may be growing over time as the population shifts to more acute clients.

For the cohort of individuals who are currently covered by ACA plans, the pent-up demand factor was adjusted downward to reflect that those individuals currently have better access to care than the uninsured.
679,855 recipients per month * $512 per month* 12 months

The uninsured cohort consists of all eligible uninsured persons including Citizens, eligible Lawful Permanent Residents and Healthy Texas Women enrollees (723,250 persons).  That raw number is converted to “recipients per month” to account for month-to-month movement in the program.

Based on historical data from HHSC, the ratio of recipient months to persons is 0.94

Temporary Assistance for Needy Families (TANF)-level Medicaid costs are used as a starting point for baseline cost (pmpm).  The cost for pregnant women is removed and dealt with separately.   The baseline pmpm is adjusted upward by 16.0 percent to account for pent-up demand in the first year.  Each subsequent year that adjustment is reduced by half. $512 is reached by multiplying the 2025 baseline pmpm of $492 by the 2025 pent-up demand factor of 1.04.

The pent-up demand factor is explained in more detail in “Per-member per-month new enrollee costs and pent-up demand explanation” section above.

The pmpm cost is adjusted for vendor drug rebate revenue (see below under “Revenue”), reducing the drug cost component by 50 percent, based on historical revenue collections. Historically rebate revenue offsets are approximately half the vendor drug premium. This is appropriate to do here because rebate revenue is part of the method of finance for drug costs.
225,963 recipient months * $512 per month * 12 months

The recipient months represent 240,386 persons in 2025.  Based on historical data from HHSC, the ratio of recipient months to persons is 0.94

The pmpm cost iscalculated  in the same manner as the cost for the Uninsured Cohort (above), except that the pent-up demand is estimated at 8 percent the first year, and 4 percent thereafter, since these are clients who were already insured, thus will have lower pent-up demand.
$18,750/visit * 17,785 visits

The percentage of non-fatal accidents requiring emergency care, based on the  Web-Based Injury Statistics Query and Reporting System (WISQARS) database of the Centers for Disease Control for adults ages 19-64 (4.6%), and the average costs for hospitalization for these accidents (traffic, falls, cuts, exertion), using 50% with the assumption that the remainder of the stay is non-emergent (life-threatening).

This percentage is applied to the uninsured population of Lawful Permanent Residents who had not met the 5-year residency requirement for eligibility, and those persons who are undocumented from the 2018 ACS, and multiplied by the cost.  The undocumented population was not considered earlier as they are ineligible for Medicaid, and would not be eligible for Expansion.
Costs for Medicaid Pregnant Women are estimated from the potential population of Pregnant Women, and use forecasted pmpm costs for women covered in adult Medicaid and delivery supplemental payment costs for those who spend their entire pregnancy in adult Medicaid, culminating in delivery. The overall cost is estimated to be $543.08 million in 2025. There will be an offset savings of approximately $70 million in general revenue differential, due to the different Federal Match. This is explained more fully in the “Offsets” Section (below).

Pregnant Women in the expansion program are estimated to cost the same pmpm as regular Pregnant Women’s Medicaid (approximately $785 pmpm) with a supplemental one-time delivery payment of $3,900 per birth.

These pmpm costs are taken directly from the HHSC 2020 LAR forecast, July 2020, HHSC Forecasting, Office of the CFO.

Pregnant Women are estimated to cost slightly more in an Expansion environment due to an assumed increased amount of time under coverage for pregnancy. In the current Medicaid program, the average client enrolls in the Pregnant Woman caseload at 4 months pregnant.  Due to the increased amount of primary care assumed under an Expansion scenario, it is assumed that the average enrollee would enroll earlier (at two months).
Cost estimates for the MBCC program were estimated using the HHSC forecast, with one-half of the program cost assumed to be the offset, resulting that MBCC clients are estimated at the same pmpm cost as regular MBC Medicaid, approximately $3,600 pmpm.

There is a savings of approximately $20 M due to differences in matched federal funds amounts.  MBCC is matched at 73% for MBCC, versus the 90% match for Expansion.  These savings are explained in more detail in the MBCC subsection of Take-up, below.
An estimated administrative state cost of $3 million was added to the overall cost for FY 2025, primarily to support staffing costs. (which will be matched at varying matching percentages).

We assumed a higher $6 million cost for administration in the first year of implementation, including potential systems changes.
Article 2: General Appropriations Act (Texas) Offsets (Health & Human Services Appropriations).

Includes the costs (GR) no longer in Medicaid Pregnant Women and Medicaid for Breast and Cervical Cancer, and Healthy Texas Women.

These are the costs removed from those programs – and are offsets, but not true savings – rather these are program shifts.

Overall costs are (mostly) the same in terms of All Funds for Medicaid programs, but the shift – and a true savings – is in the difference in match, 90 percent for expansion versus either 61.45 percent for Pregnant Women or 73.02 percent for MBCC.

In total, the true savings from the two Medicaid program GR shifts is $90.2 million GR.

Overall, costs are not the same for Healthy Texas Women. HTW are considered uninsured, and cost $512/pmpm, but they have an approximately $34/pmpm offset from HTW (assumed at regular FMAP of 61.45%).

The HTW program has a $35 M offset removed from that program to balance the cost.
Article 5, GAA: Savings from the Texas Department of Criminal Justice Hospitalization Cost for Inmates.

In states that have expanded Medicaid, Federal CMS allows the cost of inpatient hospital stays for inmates to be paid out of the Medicaid program at the 90 percent match.  Under the status quo, Texas pays 100% of the cost of these inpatient hospital stays.

There are certain conditions that must be met for the inpatient stay to be eligible for Medicaid payment: It must be an inpatient stay of greater than 24 hours, at a unit that is a separate entity (hospital) and not part of a prison unit.

The estimated costs saved above are based on cost experience from the UTMB hospital in Galveston, as well as costs for inpatient stays from other free-standing hospitals. No outpatient costs or costs from the hospital unit inside the Montford unit are included as savings.

Data to make these estimates was provided by the Office of the Chief Financial Officer at Texas Department of Criminal Justice.

A number of miscellaneous offset amounts are based on analysis done for the Episcopal Health Foundation by Pitts, Pitts, and Fritz, September 2020.  More information on how these numbers were calculated is available in that report.  These amounts total $36.9 M, broken down as follows:

Kidney Health program ($8.4 M);

Substance Abuse Treatment ($12 M);

HIV Medication Assistance ($16.5 M).

In addition, an offset of approximately $200 M is anticipated for community mental health services, based on analysis conducted by Texas Council of Community Centers.
A premium tax of 1.75% is added to the capitation for Medicaid Managed Care Insurers – This is initially an All Funds Cost.

As this is matched (FMAP), the federal share is returned to the state as revenue (the entire amount is returned as revenue, but since the state “put up” the state share, only the federal piece is true revenue).
An additional “revenue-like” component, vendor drug rebate, is not explicitly added into the offsets amounts. The model subtracted these amounts from the overall baseline pmpm cost (addressed above), at the rate of 50% of total drug spend for TANF adults, based on historical rebate details.

Vendor drug rebate revenue is different than premium tax revenue, as it comes to the Medicaid (or CHIP) programs directly, and is used as a method of finance for the programs.
723,250 Additional Texans Insured
824,621 uninsured citizens * 50% takeup rate.

Uninsured Citizens are US Citizens living in Texas who are “uninsured” and will enroll directly into the Medicaid program for adults ages 19-64, under 139 percent federal poverty level. These numbers are based on the 2018 American Community Survey (ACS) of the US Census, as compiled by HHSC and the Texas State Data Center.

The default rate of 50% was chosen because HHSC has used that value most frequently as the official estimate in the past. However, this figure is highly uncertain.  We thus make this take-up rate figure the first user-modifiable option in our tool. Users may choose a take-up percentage for this population of between 35%-64%.

The 64% ceiling is based on 2019 take-up of Pregnant Women. Using HHSC Medicaid caseload and 2018 ACS we determined that 64% of eligible individuals enrolled in Medicaid Pregnant Women, which has been a consistent through the years with Pregnant Women participation. These women had a strong incentive to enroll in coverage, stronger as a group than we believe the general uninsured citizens group has, and so we have set 64% as the take-up ceiling for this group.

The 35% floor is based on the past most-frequent use of 50% as the take-up by HHSC, allowing for the user to modify lower than our default by an amount symmetrical to the ceiling. The Kaiser Family Foundation and CMS report Texas’ participation rate for Medicaid and CHIP parents at 51% in 2013, which is significantly lower than other states (US average 71%), even dropping as low as 44% in 2016.

199,164 Uninsured, Eligible LPRs * (50% * 25%)

Uninsured LPRs are non-citizens who are lawfully authorized to live permanently within the United States and meet the same criteria as citizens in terms of uninsured, age 19-64, and FPL less than 139%. LPRs must have had LPR status for 5 years to be Medicaid eligible. HHSC has historically assumed 50% of all non-citizens are LPRs. According to data from the Department of Homeland Security (DHS), 74% of LPRs currently in the US have had that status for more than 5 years.

The take-up rate for uninsured LPRs is estimated at 25% of the citizen take-up rate (defaulted at 50%, but customizeable by the tool user), based on participation of LPRs in other Medicaid/CHIP programs.  Because the estimate is based on (mathematically dependent upon) the take-up rate used for uninsured citizens, the user may not directly input this take-up rate.  However, changing the take-up rate for uninsured citizens will impact how our model calculates the take-up rate for this cohort.

The Healthy Texas Women (HTW) program is a limited benefit program that provides family planning and women’s health (limited) services to otherwise uninsured women in Texas, ages 15-44.

Eligibility for HTW requires that the person be otherwise not Medicaid eligible — once these enrollees become Medicaid-eligible they are automatically moved to the Medicaid program, per guidance of the Centers for Medicare and Medicaid.

Because HTW is a limited-benefit program with clients often receiving only family-planning, these clients are considered by our model to be “uninsured” in the status quo.

There is no user input for the HTW component. as it is based on enrollees already participating in HTW.

Hospital costs for emergency care are provided to non-citizens, and may be reimbursed through the Medicaid program.  Our model estimates that Medicaid expansion will increase the number of persons who would become eligible by 17,785 persons over the course of the year.

Hospital and treatment costs for persons who would otherwise qualify for Medicaid except for citizenship status presenting with an emergent condition. If otherwise Medicaid eligible, Medicaid will reimburse for the emergency care (only), and any remaining care will be uncompensated care.

Expanding Medicaid will expand the pool of non-citizens and related emergent condition costs.  The percentage of non-fatal accidents requiring emergency care, based on the WISQARS (Web-Based Injury Statistics Query and Reporting System) database of the Centers for Disease Control for adults ages 19-64 (4.6%), and the average costs for hospitalization for these accidents (traffic, falls, cuts, exertion), using 50% with the assumption that the remainder of the stay is non-emergent (life-threatening). WISQARS data contains both percentages and costs for treatment.

This percentage is applied to the uninsured population of LPRs who had not met the 5-year eligibility level, and those persons who are undocumented (not considered earlier as they are ineligible for Medicaid) from the 2018 ACS, and multiplied by the cost.

There is no user-choice option for this cost.

ACA Enrollees are the cohort of individuals who would become eligible for Medicaid under Expansion who are currently insured through the Affordable Care Act’s Individual Marketplace.

These participants would no longer be eligible for subsidies on the ACA Marketplace if Texas provided Medicaid expansion up to 138% FPL. and would have to move to Medicaid to remain insured (immediately).

This cohort would not be impacted by an 1115 waiver providing Medicaid Expansion to individuals up to 100% FPL (because individuals receiving subsidies must make more than 100% to be subsidy eligible) and would remain in the ACA Individual Marketplace.

This assumption is not user-modifiable.

The number of individuals in this cohort was estimated starting from a baseline of CMS reports for 2020, grown using the ACS Census growth rate, and is estimated to be approximately 226,000 by 2025.

Medicaid Pregnant Women (MPW) is a cohort of individuals who are currently eligible for the Medicaid program during the course of their pregnancy and two-months post-partum.

Offsets/savings could be achieved because the federal match for Expansion is 90%, while the federal match for MPW is 61.45%.  If women who otherwise would have enrolled in MPW are instead enrolled in Expansion, Texas would see reduced expenditures.  We estimated the offset by estimating the women who would have enrolled in MPW, approximately 104,000 below 138%, the cutoff for Expansion, and placing them into one of the following categories:  enter Medicaid in MPW, not through Expansion, 60%; enter Medicaid through Expansion, and remain in expansion for entire pregnancy (12.5%); enter Medicaid through Expansion, and transfer to MPW after 4 months (27.5%).

Costs were calculated for each stay and stage, using the same cost for each group with two notable differences, federal match and length of coverage as a Pregnant Woman.   It is assumed that pregnancy is discovered sooner when a client is already covered through Expansion Medicaid, as most women enter MPW sometime in their 4th month, and spend a total of 7 months under coverage, compared with an assumed 9 months if covered under Expansion.  For this reason, the all funds (AF) cost is higher for Expansion, but the difference in federal match ultimately leads to a GR savings when compared to MPW.   The total offset GR savings is approximately $70 million per year.

This component may not be modified by the user.

MBCC is a cohort that is currently eligible for Medicaid because of these two specific conditions.  If Medicaid were expanded, many in this cohort would become income-eligible for the Expansion program, resulting in a higher federal match.   The clients in MBCC would become ineligible for that program, as one criteria for eligibility is that they not be otherwise eligible for Medicaid.

The total cost of the program is forecast to be $240 million in 2025, with 50% assumed to transfer to Expansion (immediately) and 50% remaining in MBCC, as the program eligibility goes to 250% FPL.   The MBCC program receives the enhanced federal match of approximately 73%, resulting in a 17% GR savings differential, for a total savings of $20 million annually (GR).

There is no user input for the MBCC component.