Medicaid, Which Is A Health Care Payment Program Jointly Funded by the federal and state governments, plays a crucial role in the United States healthcare system. This collaborative funding model is designed to provide healthcare access to millions of Americans, particularly those with low incomes and disabilities. To understand how this vital program operates, it’s essential to delve into the mechanics of its funding, especially the federal and state partnership that underpins its existence.
The federal government’s contribution to Medicaid comes in the form of matching funds provided to each state. This system, known as federal financial participation (FFP), means that for every dollar a state spends on Medicaid, the federal government contributes a matching amount. The specific percentage of federal contribution is determined by the Federal Medical Assistance Percentage (FMAP), a formula calculated annually for each state based on its per capita income. States with lower per capita incomes receive a higher FMAP, meaning the federal government covers a larger share of their Medicaid costs.
However, to unlock this federal funding, states are required to provide the non-federal share of Medicaid expenditure. This non-federal portion must be sourced from public funds at either the state or local government level. This mechanism ensures a shared responsibility in funding healthcare for vulnerable populations.
In Texas, a significant portion of the non-federal share for Medicaid supplemental and directed payments is derived from locally generated funds. Like all states participating in Medicaid, Texas must demonstrate its contribution of the non-federal share to receive the crucial federal matching funds. These non-federal funds are channeled to the Texas Health and Human Services Commission (HHSC), the state’s Medicaid agency, primarily through two distinct methods: intergovernmental transfers (IGTs) and certified public expenditures (CPEs).
Intergovernmental Transfers (IGTs) as a Funding Source
Intergovernmental transfers (IGTs) represent a direct transfer of public funds from a governmental entity, such as a city or county, to the state. This transfer must occur before any Medicaid payment is processed. By utilizing IGTs as the non-federal share, Texas can draw down federal matching Medicaid funds, effectively amplifying the impact of local public funds on healthcare services within the state.
Several key Medicaid payment programs in Texas rely on IGTs as their non-federal share funding source. These include:
- Comprehensive Hospital Reimbursement Increase Program (CHIRP): A program designed to increase reimbursement rates for hospitals, supporting their financial stability and capacity to provide care.
- Disproportionate Share Hospital (DSH) Program: This program provides additional payments to hospitals that serve a large number of low-income patients, recognizing the financial strain of providing care to this population.
- Graduate Medical Education (GME): Funding to support teaching hospitals and medical schools in training future physicians, ensuring a robust healthcare workforce.
- Uncompensated Care Payments for Hospital Providers: Reimbursement to hospitals for the costs of providing care to patients who are unable to pay, safeguarding access to emergency and essential hospital services for everyone.
Certified Public Expenditures (CPEs) as a Funding Source
Certified public expenditures (CPEs) offer another avenue for governmental entities to contribute to the non-federal share of Medicaid. CPEs are expenditures certified by a governmental entity as their public funds contribution towards Medicaid-eligible services. Governmental entities report these CPEs to the state, and the state then claims the corresponding federal matching funds. Importantly, states retain some flexibility in how they utilize these matching funds, allowing for strategic allocation within the Medicaid program.
Texas utilizes CPEs for the non-federal share in programs such as:
- Public Health Provider – Charity Care Program (PHP-CCP): Supporting public health providers in delivering charity care services to underserved populations, expanding access to crucial preventative and primary care.
- School Health and Related Services (SHARS): Funding healthcare services provided to students within schools, ensuring children have access to necessary health support to thrive academically and personally.
- Uncompensated Care for Governmental Ambulance Providers: Reimbursement for governmental ambulance services for providing care to individuals unable to pay, ensuring emergency medical transportation is available regardless of financial status.
The Role of Local Funding in Texas Medicaid
The Texas Health and Human Services Commission (HHSC), as the state Medicaid agency, bears the responsibility of ensuring all funds received from governmental entities are permissible sources for the non-federal share, adhering to federal regulations and guidelines. Recognizing the importance of proper oversight, the Texas Legislature authorized additional staff for HHSC in 2021 to enhance monitoring and oversight of local funds within the Medicaid program. This demonstrates the state’s commitment to responsible and compliant management of this jointly funded health care payment program.
Local governmental entities in Texas play a vital role in supporting Medicaid. By choosing to utilize eligible public funds, they ensure community members, regardless of their ability to pay, have access to essential healthcare services. Various eligible sources of public funds can be used, including state-appropriated funding, ad valorem taxes, funds from other local governmental entities, patient revenue (excluding federal payor program funds), tuition/fees from state higher education institutions, and healthcare-related taxes. However, critically, no federal funding can be used to generate the non-federal share.
One specific mechanism utilized in Texas is the Local Provider Participation Fund (LPPF). This healthcare-related tax is implemented locally and administered by a local government unit to meet federal requirements for eligible local funds. LPPFs involve collecting mandatory payments (taxes) from non-public hospitals within a jurisdiction. These funds are then transferred to HHSC via IGTs to serve as the non-federal share for Medicaid payments. Currently, 32 jurisdictions in Texas have the authority to operate an LPPF, highlighting the widespread adoption of this innovative local funding approach.
For local governments in Texas interested in implementing an LPPF or seeking information about existing LPPF operations, the HHSC Local Funding Monitoring team is the primary point of contact, demonstrating the state’s proactive approach in facilitating local participation in this jointly funded health care payment program.
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