Texas health and human services officials have agreed to delay signing new Medicaid contracts until summer so lawmakers can weigh in on a proposal to force three nonprofit children’s hospital plans out of the program and change coverage for 1.8 million low-income Texans.
The delay, detailed in court filings this week, temporarily halts a challenge to a court-ordered ban on new contracts that included a proposed $116 billion overhaul for managed care organizations covering low-income Texans in the state’s Medicaid STAR program and Children’s Health Insurance Program.
Officials with Cook Children’s Health Plan in Fort Worth, one of the nonprofits affected by the proposed changes, called the agreement good news and said it looks forward to working with lawmakers “to ensure a just and equitable solution.”
“As we’ve consistently maintained, this issue is of paramount importance, affecting thousands of children and families in many underserved communities across Texas,” officials said in a written statement to The Dallas Morning News. “This is undoubtedly the right course of action. Thank you to everyone involved.”
The proposed contract procurement, which emerged in March from an 18-month bidding process, would have displaced nearly half the Texans who receive Medicaid STAR and CHIP coverage from six managed care organizations across the state, switching them to new plans in late 2025.
It would have eliminated from the program health plans run for two decades by three of the state’s four major nonprofit children’s hospitals: Cook Children’s Hospital, Driscoll Children’s Hospital in Corpus Christi and Texas Children’s Hospital in Houston.
Dropping those three plans would displace about 700,000 members from their current coverage. Officials from Cook and Driscoll have said their plans would shut down if their contracts weren’t renewed. The hospitals are not in danger of closing, officials have said.
The proposed change also would displace hundreds of thousands of residents from three other plans that have operated under the program since 2012.
The number of national for-profit chains operating STAR and/or CHIP in Texas would increase under the proposed new contracts, displace highly rated plans with new untested ones, reduce the number of local managed care organizations and shrink the overall number of managed care organizations operating Medicaid programs in the state.
In the Fort Worth area, about 77% of Medicaid STAR and CHIP recipients would lose their current plan if Cook Children’s Health Plan and Wellpoint, formerly Amerigroup, were eliminated. The four insurers that would operate in the area under the new plan are for-profit national chains, of which only Aetna currently operates in the area.
The proposed changes would require a massive outreach effort on the heels of the agency’s botched 2023 reduction in Medicaid rolls, ordered by state and federal officials at the end of the pandemic emergency, that resulted in 2 million Texans losing coverage, more than half because of paperwork issues, not lack of eligibility.
The proposal has triggered criticism from lawmakers, hospitals and health care advocates who said the procurement was unfair, against the law and failed to take into consideration high performance ratings by plans that had been in the market for a decade.
The lawsuit also alleged the procurement was tainted by the early release of documents to Aetna Better Health of Texas — which wound up being one of the proposal’s biggest winners.
HHS Executive Commissioner Cecile Erwin Young had defended the new contracts and was poised to sign them this year. In early October, state District Judge Laurie Eiserloh of Travis County blocked Young from finalizing the set of contracts.
On Wednesday, the state appealed Eiserloh’s order but attached a joint motion to delay action on the case until the Legislature’s regular session ends June 2, 2025.
The motion included an agreement to abide by the court-ordered ban until after the session, even if the appeals court does not pause the case. Aetna and Molina Healthcare of Texas, which would receive hundreds of millions in new contracts under the proposed procurement, have filed to intervene in the lawsuit and are expected to oppose the delay, lawyers for one of the plans said.
State Rep. James Frank, a Wichita Falls Republican and chair of the House Human Services Committee, said Wednesday he was glad lawmakers would get the chance to examine the laws that governed the entire process — something he had asked Young to do months ago.
He said he hoped to pass legislation to “take a more specific, thoughtful approach to the procurement and management of MCOs that provide Medicaid managed care to millions of Texans.”
“I believe there is a need for much more specific legislative direction in the managed care procurement process,” he said in a written statement. “At a minimum, this must include at least some consideration of actual plan performance.”
In an earlier plea filed with the court, lawyers for Aetna asked for the opportunity to defend the company against allegations made by plaintiffs that the process had been tainted and was illegal.
The contracts, Aetna lawyers said, were selected “through a fair, transparent and objective bidding process.”
“HHSC’s procurement and scoring processes were lawful and well within the agency’s broad discretion,” the brief said. “Aetna won contracts in its service areas on objective and appropriate merit.”
Texas’ Medicaid STAR and CHIP provide coverage for a range of medical services, including routine, acute and emergency care.
The STAR program primarily serves pregnant women and low-income children and their caregivers. CHIP offers health coverage to children from low-income families whose earnings exceed Medicaid’s eligibility threshold — which in Texas is among the lowest in the nation.
Texas is among 10 states that have not expanded access to Medicaid under the Affordable Care Act and has the highest rate of uninsured residents in the country.
Medicaid managed care contracts are among the most expensive state contracts, and those in Texas are some of the nation’s highest. This is the third time the state has failed to successfully procure new contracts for the STAR and CHIP programs.
In an August letter to Young, Frank asked the agency to delay the contracts “so the legislature can provide additional clarifying direction that would include at least some reliance on past performance.”
“The main problem I have with this proposal is that many of the best-performing plans — according to HHSC’s own measurements — were not awarded a new STAR/CHIP contract,” Frank wrote. “Either the state’s quality measures are not accurately identifying the best plans, or the procurement process is not.”
