1.8 million low-income Texans may see health coverage changes after Medicaid proposes redistribution

TEXAS -- Texas health officials are poised to drop the state's three largest nonprofit children's health plans from multibillion-dollar Medicaid and children's health insurance contracts - threatening the future of plans run by legacy children's hospitals in Fort Worth and South Texas, and shaking up health care coverage for low-income families throughout the state.

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Some 1.8 million Texans who receive Medicaid coverage from six managed care organizations across the state would lose their current health plans and be shifted to new insurers next year if Texas Health and Human Services stands by a recent decision to redistribute the contracts after a competitive bidding process.

The change would mean a reduction in the number of managed care organizations that administer the state's Medicaid STAR and Children's Health Insurance Program, a shift toward for-profit companies in most areas of the state, a smaller number of top-rated plans administering care, and the introduction of new national plans to regions historically served by local MCOs.

Among those who would be affected are a collective 700,000 families, pregnant women, and children covered by Cook Children's Health Plan in the state's Tarrant service area, Texas Children's Health Plan in the Harris region, and Driscoll Health Plan in South Texas, all which formed when the CHIP program was created two decades ago.

That would leave Dell Children's Health Plan in the Austin area as the only Medicaid plan in the state that is run by a children's hospital.

The decision, which has not been finalized, comes from a new procurement process by Texas Health and Human Services that was put in place in 2021 after a long fight between the state and managed care organizations over how Texas chooses its Medicaid MCOs.

That battle is far from over. If these latest procurement decisions regarding the state's Medicaid STAR and CHIP contracts conservatively estimated at $116 billion over the next 12 years, are approved, the losers are signaling they'll take their fight to the Legislature or the courts.

"We are obviously shocked and disappointed," said Karen Love, president of Cook Children's Health Plan in Fort Worth which brought in $900 million in premium revenue last year from its long-standing state contract covering 125,000 children and families. "When I think about the incredible disruption this is going to cause those families, it just blows my mind. It's unfathomable."

Medicaid STAR and CHIP programs cover the cost of routine, acute, and emergency medical visits. STAR is primarily for pregnant women, low-income children, and their caretakers. CHIP provides health care to low-income children whose family's income is too high for Medicaid, which has some of the lowest income limits in the country. Texas has more strict Medicaid eligibility requirements for Medicaid than most states, which means the program is largely reserved for children and pregnant women.

Their members compose the vast majority of more than 4 million Texans on state Medicaid programs.

HHS contracts with managed care organizations, or MCOs, to provide, arrange, and coordinate preventive, primary, acute care, behavioral health, non-emergency medical transportation, and pharmacy-covered services for pregnant women, newborns, children, and parents with limited income.

The change would force nearly half of the Medicaid STAR and CHIP enrollees in the state out of their current health plan, potentially causing changes in providers, pharmacies, mental health services and plans.

It would also trigger a massive effort by the state to inform all those families of the change, which would take effect late next year if the plan holds.

Officials at HHS say there is no date set for when the decision may be finalized. Companies were advised to file their protests by late March. The agency declined to comment on the procurement.

The new coverage plan has sparked furious backlash from lawmakers in the affected regions, as well as protests from the insurers who stand to lose billions of dollars in future contracts and decades of work in their respective communities.

"This procurement rips out the investments made over two decades, and abandons 20 years of progress in the health of South Texas," said Craig Smith, CEO of Driscoll Health Plan, which covers 190,000 STAR/CHIP members in South Texas - and where the change would gut a critical maternal-fetal medicine program.

Meanwhile, a handful of national for-profit chains would significantly expand their foothold in those markets - in one case growing from serving just one region of Texas to seven - while the others are either diminished or forced out.

"As the largest children's health system in the United States which has been providing care for the underserved since opening its doors in 1954, Texas Children's is deeply disappointed that Texas Children's Health Plan was not awarded a STAR (Medicaid) and CHIP contract and strongly disagrees with this outcome," a spokesperson for the Texas Children's Health System in the Harris area said in an emailed statement.

The plans and the lawmakers want to see the state remove limits it has placed on the number of managed care organizations allowed to operate contracts in a particular region.

Barring that, they want Texas HHS Executive Commissioner Cecile E. Young to cancel the procurement or delay the decision to allow lawmakers time to pass legislation more specifically governing and enforcing how the state picks its Medicaid insurers.

If the procurement is vacated, it would be the agency's third unsuccessful attempt to procure new contracts for STAR and CHIP managed care organizations.

"Each MCO would benefit from such a decision, but more importantly, Medicaid members, providers, and our communities would not be subject to the sizable disruption that is certain under the current course," read a recent letter South Texas lawmakers sent to Gov. Greg Abbott.

Another disruption in care

The potential change comes on the heels of a massive process in which the Texas HHS had to review the Medicaid and CHIP enrollment of some 6 million Texans after the state was forbidden from dropping anyone's coverage during the pandemic.

The agency was heavily criticized for low staffing, communication failures, and paperwork issues that led to the dropping of hundreds of thousands of potentially qualified recipients.

Critics of the new STAR/CHIP procurement say it's yet another barrier to access by Texas' most vulnerable residents.

"We've just put these families through this incredible disruption," Love said. "Undoubtedly families will fall through the paperwork cracks, just like we've seen with the public health emergency unwinding. That's what keeps me up at night."

All three of those plans have filed protests, along with five others, including two plans that would have been new to Medicaid in Texas. At least four have said that they are considering legal action if they aren't successful with their administrative protests.

"We are deeply concerned about the potential impact of this decision on the families who rely on Texas Children's Health Plan for health coverage," a plan spokesperson said in the email. "As the only Medicaid and CHIP health plan affiliated with a children's hospital serving the 20 counties in the Harris and Jefferson service areas, the decision not to award Texas Children's Health Plan a Medicaid and CHIP contract is unnecessarily disruptive and jeopardizes the care of 450,000 of the state's most vulnerable beneficiaries."

Plans, programs in jeopardy

Cook Children's and Driscoll Health plans would likely both shut down if the new plan, released in early March, is finalized, executives told The Texas Tribune in interviews. The hospitals themselves are not in danger, they said.

"We're going to do everything we can to continue to serve those kids," Love said. "But it would be a financial challenge, no doubt about it. Cook Children's Health Care System is very strong financially. We've been here for more than 100 years. We'll probably be here for another 100 years. We are the provider of choice for families in North Texas and we'll continue to do that. But the MCO would be challenged to continue operations."

For all three children's hospital-affiliated plans, Texas is their only client. Without the STAR/CHIP contract, the plans would be left with a much smaller contract covering members of STAR Kids, which is exclusively for medically complex children with expensive care that is difficult to pay for without the premiums from the healthier members of the STAR and CHIP plans. The STAR Kids procurement is currently in draft form awaiting finalization and formal release.

"There wouldn't be an alternate path for that portion of the health plan," Peterson said. "That's not to say that we couldn't potentially repurpose all the great work that our plan has done. We have a great claims system, we pay physicians timely and accurately, and we could go on the [state] exchange and do that, but that's not really our core business or our mission. It really is about children and pregnant women."

The Texas Children's spokesperson said the change would have considerable financial impact on their nonprofit as well but that the plan "has a long and storied history of serving the children and women of Texas and looks forward to continuing to support Texas's Medicaid population."

All three expressed optimism about the fight ahead.

"When we think about our promise at Cook Children's, which is to ensure the health of every child in our community, this is a fight for that promise," Love said. "It's not a fight for the dollars we get out of this contract. Medicaid is by no means a high-profit business for us, or for the [health] system. So this is a fight for the kids in our community, not our organization."

Lawmakers weigh in on threatened programs

Earlier this month, a bipartisan delegation of Texas legislators from South Texas sent letters to Abbott and Young expressing "deep concerns" about the new procurement.

The April 3 letters demand that the decision be delayed and reconsidered - especially due to its impact on the Driscoll Health Plan and the roughly 180,000 STAR and CHIP members the plan serves in those lawmakers' districts.

The plan is run by the Corpus Christi-based Driscoll Children's Hospital but also serves the Rio Grande Valley. The new Driscoll Children's Hospital Rio Grande Valley will open in Edinburg in May.

They also ask that Young order the removal of limits on the number of managed care organizations that can be operating STAR/CHIP contracts in any one service area "to create more robust competition among MCOs across the state."

If the decision is delayed until next year, lawmakers would have a chance to pass legislation that could protect plans that have been high-performing in the past but lost their contracts anyway, the letter says.

"It is important that the decision-making process acknowledges the significant contributions and expertise of DHP in addressing the healthcare needs of our region," the letter reads. "HHSC did not take into consideration our communities' needs and preferences, nor did it seek input from legislators, providers, or other stakeholders impacted by the decision."

The letter was signed by 19 area legislators - Democrats and Republicans - including state Sen. Judith Zaffirini, D-Laredo, and state Rep. Todd Hunter, R-Corpus Christi.

Executives from the children's hospital plans said some programs and access to care that had been funded by the plans could also be seriously damaged.

Driscoll Health Plan, for example, invests $10 million per year in maternal-fetal medicine incentives to and funds 75% of those specialists in South Texas, a region with historically high rates of diabetes and premature births as well as a critical shortage of women's health specialists.

This investment has decreased preterm births, decreased maternal mortality, and resulted in about $100 million per year in healthcare savings, Smith said.

The maternal-fetal medicine program would be gutted if the plan goes under. About half of the children born to pregnant mothers on Medicaid in South Texas are in the Driscoll Health Plan, said Dr. Mary Dale Peterson, executive vice president and chief operating officer of Driscoll Health System.

"It's definitely a threat to the health plan," she said. "One of my greatest fears, if this procurement stands, is that all that work we've done over the last 18 years is down the tubes, and I don't see any other health plans coming in to do the type of work we've done," she said.

Cook Children's Health Plan has made decades of investment in community health, including a network of clinics in vulnerable communities to improve access to those residents, Love said.

That investment includes over $10 million to build seven centers and then about $9 million per year to cover the losses they incur from seeing primarily Medicaid and CHIP patients. The plan's eighth neighborhood health center is about to open, for example.

Plan officials also say the procurement process does not adhere to state laws that, over the years, have sought to direct the process toward selecting plans that had invested in and been well-received by their communities, or that are tailored to unique population groups like children, and that would allow the greatest continuity of care as measures of value and quality.

Driscoll leaned in on maternal-fetal health because South Texas had some of the most troubling birthing stats in the state, if not the U.S., Peterson said. The plan is also equipped to tailor programs that take into consideration immigrant families and health problems that tend to plague the Hispanic population more than other segments, she said.

"One size does not fit all. In South Texas, we have really low smoking rates and our pregnant population at very high diabetes rates," she said. "In East Texas, there is a much higher African American population, there is a much higher smoking rate. And so if I were running an East Texas plan, I would be tailoring programs to that population."

A broad impact

In several areas of the state, well over half of the current Medicaid STAR and CHIP recipients would lose their plan and be shifted to new insurance plans.

In Austin, for example, Dell, Superior Healthplan, and Blue Cross Blue Shield currently operate. Superior, which covers 57% of the STAR and CHIP recipients in the Travis area, would be dropped from that market under the new proposal while Aetna would be added as a new insurer to the area.

Some 77% of recipients in the Fort Worth area would lose their current plan with the exit of Cook Children's Health Plan and Wellpoint, formerly Amerigroup. The four companies assigned to the region under the new plan are all for-profit national chains. Only one, Aetna, currently operates in the Tarrant area.

Nearly 70% of recipients in Beaumont would be shifted to a different plan. Almost half in Houston and San Antonio would see coverage changes as well.

In Central Texas, home to Temple and Waco, 100% of recipients would lose their coverage if Baylor Scott & White, Wellpoint, and Superior get kicked out of that region. They would be replaced with BCBS, Aetna, and UnitedHealthcare Community Plan of Texas.

Only the Lubbock area will see zero disruption in coverage through Superior, BSW, and Wellpoint for 80,000 STAR and CHIP recipients in the region.

"When we're talking about Medicaid, we're talking about, generally speaking, more vulnerable people," said Arielle Kane, director of Medicaid initiatives for Families USA, a national advocacy group. "These are kids whose parents may not have a ton of resources and so scheduling and travel time and all those pieces like do really matter. And there is a real-life impact from disrupting that."

An 'untested and flawed' decision process

Medicaid-managed care contracts are routinely the most expensive contracts states pay for, and the ones in Texas are among the highest in the nation.

The state's privatized Medicaid program divides the state into 13 service areas, and multiple contracts are awarded for each service area so enrollees can have a choice of plans, as required by federal law.

Texas law allows three two-year renewals on the six-year Medicaid STAR and CHIP contracts, which are combined into a single service contract so that every MCO that gets a STAR contract also gets a CHIP contract. After the contracts have been in place for 12 years, HHS must run a new procurement.

During that process, the agency issues requests for proposals based on a set of guidelines and requirements, accepts bids for the contracts, puts the insurers through an evaluation process, and then awards the new contracts.

But Texas HHS has had six years of canceled procurements around Medicaid contracts due to various issues. The last successful one for the STAR/CHIP was about 12 years ago when the current MCOs were chosen.

The state had to cancel two procurements for the STAR/CHIP contracts, the same ones that are currently under review, in 2018. This is the agency's third attempt - but this time, they pulled in outside help.

In 2019, Abbott authorized Texas HHSC Medicaid and CHIP Services, at the agency's own request, to hire a third-party contractor to review the agency's procurement processes and report on how it could be improved.

The review by Mercer Health Benefits, which has helped run the Medicaid contract procurements in several other states, resulted in a number of recommendations.

But when the state directed MCOs to start making their proposals for the new contracts in December 2022, they also included elements that were not endorsed in the 2019 Mercer report nor presented for public comment.

The agency placed a limit on the number of MCOs that could be present in each service area, which the state has said would make sure each plan had access to enough members to stay viable. There are also limits on the number of service areas each MCO could serve.

Among the changes, plan executives say, was a new scoring-and-ranking system that placed so much weight on numerical scores that healthcare quality, preferences of the community, market share, and historical performance were not appropriately considered.

The state began tracking MCO performance on Medicaid contracts every year starting in 2018.

"HHS has so much data on the managed care organizations at their fingertips. We give them all of our data, all our member data, all our claims data, everything we know about these members," Love said. "But then they don't use the information they have available on our performance to make their decision. Rather, they use an essay writing contest to see who can turn in the best sounding essay."

Evaluators let the top-scoring plans choose how many contracts they could get and the service areas where those contracts would be, up to their new official limit of seven.

The top four scorers - Blue Cross Blue Shield, Molina Healthcare, Aetna, and UnitedHealthcare - snapped up 32 of the 45 available contracts. Mandatory contracts - those held by the main public hospital-affiliated plans in a particular region- in Houston, Dallas, El Paso, San Antonio, and Austin took up another five. State law requires that those plans be awarded Medicaid contracts regardless of their quality measures or performance in the procurements.

After those had been picked over by the winners, the lower-scoring plans in each region, which included some of Medicaid's historically highest performers by the agency's own yearly evaluations, were either dropped altogether - like the three children's hospital plans - or spread out over the few open contracts that were left.

But because some plans, like Cook's, had only applied for one service area, some companies that got lower scores still wound up with new contracts under the new proposed procurement. Humana, for example, won two contracts, while the Cook's plan - which scored higher but was shut out of Tarrant's four allowed MCOs by the top four scoring plans - got none.

Blue Cross Blue Shield, which came in at number two in the procurement scores, currently only serves Austin for STAR and CHIP members but would expand into six other regions. Humana, which didn't have a Medicaid STAR/CHIP contract previously, would be awarded two new ones - including one in the Nueces service area, displacing Driscoll.

And yet, Humana has no Medicaid quality performance measures on record at all, while, according to state data, the Driscoll plan has on average outperformed every other Medicaid STAR/CHIP plan in the state since those annual evaluations began in 2018.

"There's a complete disconnect between the successes that have brought about meaningful gains in health care, and the intended direction of this procurement," Smith said.

The Texas Tribune is a nonprofit, nonpartisan media organization that informs Texans - and engages with them - about public policy, politics, government, and statewide issues.