Funding the Floor: Medicaid and Texas’ Safety Net

Anxiety about how to afford healthcare weighs on many Americans, but the question of whether they can afford healthcare starts with whether they have health insurance. Without coverage, a doctor’s visit, prescription or unexpected trip to the emergency room can become a financial burden and for some, a reason to delay or avoid care altogether.

Medicaid helps millions of people avoid that choice. But Medicaid isn’t only a health insurance program for the people enrolled in it. For hospitals, Medicaid is also a major source of payment for the care they provide Texans.

When Medicaid funding is disrupted or reimbursement falls short of the cost of care, the effects don’t stop at a hospital’s balance sheet. They can impact the services hospitals are able to provide, the communities they serve and ultimately, the patients who depend on them.

What is Medicaid?

Medicaid is one of two major government health insurance programs; the other is Medicare. Medicare is fully managed by the federal government. On the other hand, states administer Medicaid using a combination of federal and state tax dollars. States make decisions about who is eligible, what care is covered, and how much providers are paid. This means Medicaid programs vary widely from state to state.

Medicare and Medicaid serve different populations. Texas’ Medicaid program is available to people with low incomes who meet specific criteria, such as children, pregnant women, older adults in long-term care, and people with disabilities. Most Americans over the age of 65 are eligible for Medicare no matter their income. Patients can also be eligible for both.

Medicaid insures 4 million people in Texas – 73% of which are children – providing them with essential benefits such as inpatient and outpatient hospital care, primary and preventive care, behavioral health care, home health services and more.

But Texas is different from most states in one significant way: it has not expanded Medicaid under the Affordable Care Act.

“Texas turned down the opportunity to allow wider eligibility for Medicaid in exchange for additional funds,” says Anna Stelter, vice president of policy at THA. “For example, compared to some other states, most working-age adult Texans who aren’t raising a child or disabled aren’t eligible for Medicaid, no matter how little they make.”

The result is a large population of Texans who fall outside Medicaid eligibility while also lacking private insurance. Texas has the nation’s highest uninsured rate, leaving millions of people with fewer options for affordable preventive and routine care.

When people delay care because they cannot afford it, they don’t necessarily stop needing care – conditions can worsen and medical needs can become emergencies. Eventually, many patients end up where they know care will be provided: a hospital emergency room.

A Strong Knot in the Safety Net

Hospitals are a critical part of the healthcare safety-net. Under the Emergency Medical Treatment and Labor Act (EMTALA), all Medicare and Medicaid-participating hospitals are required to screen and stabilize anyone who comes in for emergency care, regardless of their ability to pay. are required to screen and stabilize anyone who comes in for emergency care, regardless of their ability to pay.

But hospitals do much more than emergency care. They provide inpatient treatment, trauma services, maternity care, specialized procedures and other essential services that communities depend on.

That makes hospitals a particularly important safety-net in a state where so many people lack insurance or face barriers to routine care. “Hospitals are where the healthcare system has to be prepared to meet patients wherever they are, whether they have insurance, Medicaid coverage or very limited ability to pay,” says Stelter.

And hospitals have no shortage of work to do. Texans are growing older, and in many cases, living with increasingly complex health needs. At the same time, high premiums and deductibles can make private coverage difficult to afford and cause enrollees to avoid primary or preventive care they need. When routine care becomes harder to access, patients may arrive at hospitals with severe conditions that require more intensive and expensive treatment.

So what happens when a Medicaid patient receives care at a hospital?

The Gap

When a hospital cares for a Medicaid patient, it submits a claim for reimbursement. But base Medicaid reimbursement payments do not necessarily cover the full cost of providing that care.

In Texas, general revenue-funded base Medicaid reimbursement covers roughly 72–75% of the cost of caring for Medicaid patients, depending on the care provided and the type of hospital.

“The cost of providing care doesn’t change based on what a payer reimburses. Hospitals still have the same nurses, physicians, equipment and facilities to support, which is why the gap between reimbursement and the actual cost of care matters so much,” says Stelter.

Medicaid directed payment programs, or DPPs, help narrow that gap.

Texas hospitals self-finance these programs to draw down federal matching funds, creating supplemental payments that help support the cost of care, labor and other resources necessary to operate hospitals. Three key programs include:

The Comprehensive Hospital Increase Reimbursement Program (CHIRP) – supports hospitals directly.
Texas Incentives for Physicians and Professional Services (TIPPS) – supports physician groups, including those affiliated with hospitals.
Rural Access to Primary and Preventive Services (RAPPS) – supports rural health clinics, including hospital-based clinics.

These programs are critical to help supplement the cost of care, labor and resources necessary to run a hospital. They act like a financial bridge; without it, hospitals are left to manage a larger share of the gap between reimbursement and the actual cost of care.

Real Threats, Real Consequences

Recently, an impasse between CMS and Texas left hospitals bearing the loss of roughly $27 million in Medicaid funding each day. The dispute centered on the financing mechanisms Texas uses to fund its share of Medicaid hospital supplemental payments, including Local Provider Participation Funds. A resolution came after months-long negotiation between CMS, the Office of the Governor, and Texas Health and Human Services Commission, concluding just over two weeks after the losses began – all hospitals could do was raise awareness of the situation and the stakes.

The episode is a visible example of a broader challenge: Hospital financing depends on a complicated web of state and federal funding decisions. Instability to any part of that system can have consequences for the care hospitals provide.

Hospitals’ financial uncertainty extends beyond the most recent dispute. H.R. 1 cut nearly $1 trillion from Medicaid nationwide over the next decade. CMS also interrupted $1.4 billion in 2026 CHIRP funds tied to quality-of-care incentives. At the same time, the expiration of enhanced premium tax credits is putting additional financial pressure on individuals searching for affordable coverage.

For Texas hospitals, these pressures compound an already difficult financial environment. Hospitals provide more than immediate medical care, notes THA’s Senior Director of Health Policy, Erika Ramirez-Wright.

“Hospital financing is also a public health issue,” she says. “Financial stability affects a hospital’s ability to maintain the multitude of services and capacity its community depends on. When that stability is disrupted, the effects can extend beyond the hospital itself.”

When funding is threatened, hospitals have options, but none are without consequences. They may have to take on additional debt, draw down reserves, or look for new ways to reduce costs. Over time, that can mean difficult decisions about staffing, services, and access to care.

Funding the Floor

Medicaid is not a marginal part of Texas’ healthcare system: millions of Texans depend on the program for access to care, even as Texas remains one of the states that has not expanded Medicaid eligibility.

Additionally, Medicaid supplemental payments are one piece of a larger healthcare finance equation. For Texas hospitals, they help close the distance between what it costs to care for a Medicaid patient and what base reimbursement covers, making them an important part of the financial foundation that allows hospitals to continue serving Medicaid patients and the broader communities that rely on them.

Funding the floor isn’t about funding extras. When base reimbursement falls short and the supplemental funding that helps close that gap is threatened, the floor starts to shake.

For hospitals that serve as part of the healthcare safety-net, reliable, comprehensive Medicaid funding means making sure hospitals and healthcare providers have the basic resources ready to keep caring for patients when they need it.

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