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Texas Health and Human Services Commission Submits Legislative Appropriations Request

This week, our In Focus section reviews Texas’ biennial legislative appropriations request (LAR) for fiscal years 2020-21, submitted by the Texas Health and Human Services Commission (HHSC). The document, which totals 1358 pages, includes summary program data as well as budget breakouts by agency strategies, priorities, and source of funds.

The total two-year budget baseline request for all programs exceeds $77.3 billion. With the additional $6.5 billion in Exceptional Items (explained in detail below), the total increases to more than $83.8 billion.  Medicaid and CHIP funding represents 85% of the total health and human services budget.

The LAR is the first step in what is a lengthy process. Over the next few months, the Texas Legislative Budget Board and Governor’s Office of Budget, Planning and Policy will hold public hearings with agency officials to review the LAR in detail. Both the Legislative Budget Board (LBB) and Governor’s office will then prepare separate budget recommendations for submission to the House Appropriations and Senate Finance Committees. Both committees will hold separate hearings beginning late fall and continuing throughout the legislative session, which begins January 8, 2018 and ends May 27, 2018.  The House and Senate will enact separate budget proposals, followed by conference committee negotiations and a final joint budget.

If the Legislature fails to adopt a budget during the regular session, a special legislative session will be necessary during the summer of 2019. Upon final Legislative enactment, Governor’s signature and certification by the Comptroller, the 2020 budget takes effect the new fiscal year, which starts September 1, 2019.

Medicaid Budget Shortfall

One of the first items of business the Legislature will have to address is a current fiscal year Medicaid shortfall estimated at between $2 to $2.5 billion.  State Comptroller Glen Hager testified before the Senate Finance committee earlier this year that the Medicaid shortfall combined with Hurricane Harvey costs and other program needs could leave a hole in current fiscal year funding of up to $4 billion.  While the state has a “rainy day” fund with more than $11 billion that could be tapped, state leaders are reluctant to use those funds unless they have no other choice.

Budget shortfalls are not unusual, and, while they could not anticipate the costs associated with Hurricane Harvey, the Legislature was fully aware of the implications of their decision to underfund the Medicaid program. Typically, shortfalls are addressed early in the session and are separate from the budget process for the biennial budget.  However, funds budgeted to cover current shortfalls will decrease the total funds available for the 2020-21 biennial budget.

New HHSC Executive Commissioner Named

Texas Governor Greg Abbott recently announced his appointment of Dr. Courtney Phillips as the new HHSC Executive Commissioner, effective October 19, 2018. As the current Chief Executive Officer of the Nebraska Department of Health and Human Services, Dr. Phillips oversees a staff of 4,700 employees and an annual budget of $3.6 billion. Phillips’ new position at HHSC will include significant participation in the legislative budget process, as well as administration of an annual budget and staff more than 10 times the size of the Nebraska HHS program. Phillips’ appointment must also be confirmed by the Texas Senate.  Phillips replaces former Commissioner Charles Smith, who retired under pressure following a series of high-profile contacting and oversight problems.

Overview of Health and Human Services Program Responsibilities

In 2015-17, HHSC implemented a significant reorganization and transformation program based on the health and human services sunset legislation enacted in 2015. The legislation abolished the Department of Aging and Disability services and Department of Assistive and Rehabilitative Services and moved those services under the Health and Human Services Commission (HHSC).  These changes, as well as others, are designed to centralize and provide better oversight and coordination of services and improve care delivery and cost-effectiveness.  With the consolidation, HHSC now administers more than 200 programs across the state and employs more than 40,000 staff. This budget is the first fully consolidated budget since the transformation was completed.

Requirements for Budget Submission

Agency LARs must comply with detailed instructions developed jointly by the Texas LBB and the Texas Governor’s office. For the 2020-21 budget cycle, agencies were instructed to submit baseline budget requests that do not exceed the sum of amounts expended in FY 2018 and budgeted for FY 2019.  Agencies also are required to submit a supplemental budget schedule detailing how they would propose to reduce the baseline request by an additional 10 percent, provided in 2.5 percent increments.

The instructions also include several items that are exempt from the baseline limitations. Health and Human Services items identified as exempt include:

  • Funds necessary to maintain funding for behavioral health services programs
  • Funds necessary to maintain current benefits and eligibility in Medicaid programs, CHIP, foster care programs, adoption subsidies programs, and the permanency care assistance program; baseline budget requests are also required to include amounts sufficient for projected caseload growth for each of these programs; and
  • Funds necessary to maintain funding Child Protective Services

Other programs and expenses that the agency considers to be “essential funding requests” that exceed the baseline may be submitted separately as “Exceptional Items.”  Upon request, agencies must be prepared to identify lower-priority programs or other cost savings to help offset the increased costs associated with “Exceptional Items.”

Budget Details

As noted above, the lengthy budget document includes extensive detail regarding the funding needs by program and strategic priority. The summary budget provided in the table below includes the key program areas and line-item summaries for Medicaid and CHIP.  Information on other HHSC programs can be found in the LAR link provided at the end of this article.

The Medicaid program LAR baseline request for 2020-21 represents a slight increase of 1.13% over the current 2018-19 budget for Medicaid spending. However, the additional Exceptional Items requested would raise Medicaid spending by 9.46% if fully funded.  This includes additional funds for a higher Medicaid cost growth rate (including utilization and acuity changes, medical inflation, new services). The baseline request includes projected caseload growth at FY 2019 average costs.  Cost growth must be requested as an exceptional item.

CHIP funding for baseline costs would increase by only 0.3% if fully funded. Inclusion of Exceptional Item funding would raise the increase to 0.95%, including a cost growth rate increase.

Some of the funding priorities identified by HHSC include the following:

  • Funding additional Medicaid waiver slots and reducing Community Program interest lists (i.e., wait lists) are identified as the agency’s top priority. HHSC operates six long-term services and supports waiver programs for individuals with an intellectual or developmental disability (IDD), which allows eligible individuals to reside in a community rather than an institutional setting. The state currently has more than 263,000 individuals on interest lists, who are waiting for a community slot.
  • Increase inpatient mental health capacity by expanding the number of state hospital beds for individuals requiring inpatient psychiatric services. As of May 2019, more than 800 people were waiting for a community bed to become available. Many of these individuals remain in local jails and emergency departments while waiting for a state hospital opening.
  • Increase funding for Licensed Mental Health Authorities in order to expand access to behavioral health services and reduce wait lists for individuals seeking outpatient mental health services.
  • Increase funding for maternal and child health services to expand services under the Early Childhood Intervention (ECI), Blind Children’s Vocational Discovery and Developmental program, and Guardianship Services program.
  • Increase funding for Community Attendant Services to expand access to community-based services and waivers by increasing the minimum hourly wage for attendants from $8.00 to $8.50. The LAR notes that the current minimum wage makes it difficult for providers to hire and retain qualified attendants, pointing out that employees can earn higher wages in the fast food and other industries that hire low-wage workers.
  • Expand funding for staff and oversee and reform procurement operations in order to address identified problems with agency’s contract procurement process, including hiring additional staff and legal support.

The LAR also notes that improvements in Managed Care Oversight and monitoring through improved operational compliance and performance reviews are also high priorities. More than 92 percent of the Medicaid population is served by managed care organizations and the agency has been criticized by various legislative committees for lax contractual oversight and failure to appropriately address MCO contract violations. Although the LAR does not include a specific request for increased funds for contract oversight, the agency intends to work with the Legislature to identify additional needs to improve its oversight of managed care.

Next Steps

Following is a summary of the key activities that will occur between now and final adoption of the budget. Timelines are an approximation and depend on the Legislature enacting the budget during the regular legislative session.

See complete budget LAR at