NCPA - National Center for Policy Analysis

Market-Based Medicaid Reform

February 23, 2011

Incremental policy changes are not sufficient to address the projected doubling of Medicaid costs every decade.  Reform must be carefully designed to ensure against recreating the same problems that have plagued Medicaid since its inception: rising caseloads and mandated benefits, says the Texas Public Policy Foundation (TPPF).

The TPPF proposes dramatic reforms to the way medical care and services are provided to low-income individuals in Texas, under a new assistance program: TexHealth.

  • TexHealth offers a starting point for the discussion of reforming Medicaid into a free market-based program.
  • TexHealth would change the dynamic of Medicaid from a defined benefit program to a defined contribution program, allowing individuals to make their own decisions in regards to their health insurance needs.
  • A defined contribution program will not only allow better access to health care, but allow Texas to subsidize individuals earning up to 175 percent of the federal poverty level (FPL).
  • TexHealth would subsidize the costs of purchasing health insurance in the private market, basing the amount of the subsidy on a sliding scale tied to the individual's income and assets.

Under a defined contribution plan, TexHealth will provide better access to health care services and be available to potentially 4 million more individuals than currently served, for less money.

  • Initially, the state would spend $22.26 billion per biennium in subsidies to low-income Texans, $12.4 billion on long-term services and support, and $9.22 billion for implementation and administration.
  • This would total 5 percent less than the state spent on Medicaid in the 2008-2009 biennium.

Reforming Medicaid is necessary, but it is possible only by recapturing the taxes paid by Texans to the federal government that comes back to the state for funding Medicaid.  The TPPF explores three possible methods to restore the state's control of its budget:

  • Through an interstate compact.
  • Through using the requirement for a health insurance exchange to put Medicaid clients into a subsidized, private insurance market.
  • Through an 1115 waiver.

Source: Arlene Wohlgemuth, Brittani Miller and Spencer Harris, "Medicaid Reform: Constructive Alternatives to a Failed Program," February 2011.

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