Obamacare provision a boon to budget writers on state prison health costs but complicates UTMB negotiations

Via Sentencing Law and Policy, I was fascinated to see an article from Stateline.org about how "Obamacare" may soon actually provide hospital coverage for state-level prisoners, which is an aspect of federal healthcare reform I was definitely unaware of. Reported Stateline.org:

The federal health law’s controversial Medicaid expansion is expected to add billions to states’ already overburdened Medicaid budgets. But it also offers a rarely discussed cost-cutting opportunity for state corrections agencies. Starting in 2014, virtually all state prison inmates could be eligible for Medicaid coverage of hospital stays—at the expense of the federal government.

In most states, Medicaid is not an option for prison inmates. But a little known federal rule allows coverage for Medicaid-eligible inmates who leave a prison and check into a private or community hospital. Technically, those who stay in the hospital for 24 hours or more are no longer considered prison inmates for the duration of their stay.

Here’s how it works:

Under the 1965 law that created Medicaid, anyone entering a state prison lost Medicaid eligibility. The same went for people who entered local jails, juvenile lock-ups and state mental institutions. The reasoning was that states and local governments had historically taken responsibility for inmate health care so the federal-state Medicaid plan was not needed.

But an exception to that general rule opened up in 1997 when the U.S. Department of Health and Human Services wrote to state Medicaid directors saying inmates who leave state or local facilities for treatment in local hospitals can get their bills paid by Medicaid, if they are otherwise eligible. In addition to the incarcerated, those on probation or parole or under house arrest were among those who could participate.

Still, most state prisoners do not qualify for Medicaid. That's because all but a few states limit Medicaid  to low-income juveniles, pregnant women, adults with disabilities and frail elders.  The majority of people in lock-ups are able-bodied adults who do not qualify, even on the outside. In 2014, however, when Medicaid is slated to cover some 16 million more Americans, anyone with an income below 133 percent of the federal poverty line will become eligible. Since most people have little or no income once they are incarcerated, virtually all of the nation’s 1.4 million state inmates would qualify for Medicaid.

As a bonus to state corrections agencies, most inmates would be considered new to Medicaid, making them eligible for 100 percent coverage by the federal government between 2014 and 2019. After that, states would be responsible for only 10 percent of their coverage. In addition, state health insurance exchanges—which are required to be functioning by 2014—would make it easier for corrections departments to sign inmates up for the program.

I find this report fascinating in the context of the ongoing negotiations between university health systems in Texas and the state prison system over provision of inmate care. Hospital care is considered the "plum" of Texas inmate healthcare, while the money losing part is the frontline clinics inside prison facilities. So UTMB has been pushing to keep the hospital care and dump in-prison healthcare, while the Department of Criminal Justice has threatened to farm out inmate healthcare to local hospitals if UTMB won't agree to continue operating the prison clinics.

This news, though - while welcome from the perspective of Texas taxpayers who will see state costs for inmate healthcare decline - seemingly throws a monkey wrench into everyone's plans. Presently, UTMB charges more than Medicaid rates for hospital care, so once inmates are covered by Medicaid, that part of the contract would cease to be the "plum" they consider it now. Similarly, local hospitals may be less likely to seek out contracts with the prison system if they must accept Medicaid rates, and it's a virtual certainty that private prison health contractors won't want the job at the low rates Medicaid pays.

At the same time, the state would be foolish NOT to sign inmates up for Medicaid, where the feds would pay 100% of hospital costs between 2014 and 2019 and 90% after that. Given recent cuts to Texas' prison healthcare budgets, the state has virtually no choice but to go that route. Right now, 100% of hospital costs come from the state budget.

I've no idea whether the parties to negotiations are aware of these changes to federal law, but signing up prisoners for Medicaid would alter the incentives for everyone involved, making hospital care less lucrative and attractive for UTMB, local hospitals, and private prison health providers alike. Indeed, finding providers willing to take Medicaid rates is already a challenge in the free world, so it remains to be seen how all this will play out.

In any event, this is good news in the medium term for Texas budget writers, even if it's an especially complicating factor for TDCJ's ability to contract for hospital care, with UTMB or anybody else, in the short run.