LEGISLATIVE BUDGET BOARD
                          Austin, Texas

                           FISCAL NOTE
                       74th Regular Session

                          April 27, 1995



 TO:     Honorable Hugo Berlanga, Chair         IN RE:  Senate Bill No. 10,
         Committee on Public Health                           as engrossed
         House of Representatives                       By: Zaffirini, et
         Austin, Texas                          al.








FROM: John Keel, Director

In response to your request for a Fiscal Note on Senate Bill No.
10 (Relating to development of a health care delivery system
under the state Medicaid program that results in cost savings to
the state.) this office has determined the following:

The bill would make no appropriation but could provide the legal
basis for an appropriation of funds to implement the provisions
of the bill.

The bill would authorize the Health and Human Services Commission
to develop a health care delivery system that restructures the
delivery of health care services provided under the State
Medicaid Program.  The bill provides intent and direction, to the
extent possible, regarding the design of the system.  The bill
would allow the Commission to maximize the financing of the
Medicaid Program by obtaining federal matching funds for local
and state resources spent on indigent health care.  The
Commission would be required to apply for a federal waiver no
later than July 31, 1995 to implement the provisions of this
bill.

The bill details the requirements for the Commission and other
entities intending to develop a managed care system, to provide
funding for matching purposes or to form an intergovernmental
initiative to administer the health care delivery system subject
to state oversight.   The following assumptions were made in
developing the fiscal estimates:
   




  1)  Local units of government would make available funds for
matching potential federal funds.  These matching funds are 
assumed to be currently available from such sources as tax
revenues and other public funds used to operate hospital
districts and public hospitals; funds allocated under the County
Indigent Health Care Program; and general revenue funding
associated with charity care provided through physician practice
plans.  It is estimated that savings to the General Revenue Fund
would range from $0-$250 million annually for the next five
years.  Savings to the State would accrue to the extent local
funds can be made available for matching federal funds within the
regular Medicaid Program.  This number will have to be agreed
upon by the local matching entities.

  2)  As part of a waiver, the State of Texas would exercise an
option in the Social Security Act that permits states to raise
eligibility levels for children and pregnant women by
disregarding certain types of income or assets.

  3)  Because other states have expanded eligibility for adults
under federal waivers by using a portion of their
disproportionate share (DSH) funding, it was assumed that the
State would also attempt to use funds to protect current levels
of DSH program funding by using these funds to expand Medicaid
eligibility.  It is assumed that a portion of the per capita cost
of covering newly eligible persons, thereby discontinuing the
availability of a portion of these DSH funds for lump-sum DSH
payments to hospitals.  The funding contributions of government
entities would return to them through capitation fees for managed
care coverage to expanded numbers of eligible Texans.  This
assumption would protect approximately $900 million in federal
funds payments annually for the next five years, the life of the
waiver.

The bill would allow the Health and Human Services Commission to
design the system using different types of delivery systems in
different service regions, including primary care case
management, a partially capitated system, fully capitated
arrangements or a combination thereof.

Managed Care savings would accrue to the Department of Health in
Medicaid acute care services.  The following assumptions are made
in developing and implementing a managed care system:

  1)  Phase-in of Medicaid eligible populations.  Rural (assumes
19 percent of eligibles live in rural areas) and aged populations
are excluded from the managed care system.  Disabled and blind
population groups are phased in:  1996, 10 percent; 1997, 30
percent; 1998, 50 percent; 1999, 81 percent.  Remaining
populations would begin phase-in at the same percentages but are
anticipated to begin in 1995.

  2)  All participants, disabled and non-disabled, would be
responsible for copayment of services.  




  3)  Eligibility for Medicaid benefits would be guaranteed for a 
period of 12 months.

  4)  Savings and costs from implementing managed care are based
on the assumption that the State will receive the necessary
waivers from the Health Care Financing Administration.  Approval
of a waiver allowing the State to implement managed care is
fairly routine; however, the approval of a waiver to charge
copayment for services to all individuals in the Medicaid Program
is less certain.

The managed care system savings were projected using February
1995 updates by the Health  Department for acute care caseloads
and costs for fiscal years 1996 and 1997.  Managed care savings
and costs for fiscal years 1998, 1999, and 2000 were calculated
by applying the original managed care trend assumptions from
November 1994 estimates to the February data for  fiscal years
1998-2000.   Savings from copayments and costs for 12 month
eligibility coverage were calculated by applying the same trends
from the updated managed care calculations to the copayment and
12 month eligibility assumptions from November 1994. 
Administrative costs are included and are related to Public
Health Technicians at the Department of Health and eligibility
determination workers and computer programming at the Department
of Human Services. 

NOTE:  Updates to Medicaid caseloads and costs will be made in
mid-April 1995.  At that time, Lewin-VHI will calculate managed
care fiscal implications for HHSC.

The probable fiscal implication of implementing the provisions of
the bill during each of the first  five years following passage
is estimated as follows: