A state judge last week blocked a $116 billion Medicaid contract proposal that would have affected health care coverage for about 1.8 million low-income Texans.
Here’s what to know about the ruling:
What did the judge rule?
Several managed care organizations that were negatively affected by the renegotiated contracts sued, arguing the state violated Texas law by failing to properly weigh their past performance and their investments in local communities. They also accused the state of improperly disclosing sensitive information to competitors during the evaluation process.
After a weeklong trial, District Judge Laurie Eiserloh of Travis County sided with the managed care organizations and issued a temporary injunction Oct. 4 that blocked Texas Health and Human Services Executive Commissioner Cecile Erwin Young from finalizing new contracts for Medicaid services.
Who would have been affected by the proposal?
About half of those in the state’s Medicaid STAR program and the Children’s Health Insurance Program would have had to change their insurer.
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.
The proposal would have also cut health plans run for two decades by three of the state’s four major nonprofit children’s hospitals: Cook Children’s Hospital in Fort Worth, Driscoll Children’s Hospital in Corpus Christi, and Texas Children’s Hospital in Houston. It also would have reduced or eliminated the involvement of some for-profit companies that have been operating with high marks in the state for over a decade.
What is the issue?
At issue was a proposed renegotiation of tax-funded contracts for the managed care organizations that administer the STAR and CHIP programs. The current contracts have been in effect for about 12 years.
The proposal would have raised the number of national for-profit chains operating under the program, displaced highly rated plans with new untested ones, reduced the number of local managed care organizations and shrunk the number of managed care organizations operating Medicaid programs in the state.
Why was the state doing this?
Contractors are the foundation for state health care services, and contracts are negotiated for best value and highest quality.
The state is required by law to regularly evaluate government contracts to make sure contractors are providing the best service and best value. New companies also must be asked to bid on those services.
What’s next?
Coverage for the 1.8 million Medicaid STAR and CHIP members remains unchanged for now.
Eislerloh set a trial for November 2025 to consider whether to make the injunction permanent. Before then, the state is expected to appeal her ruling, adding another level of court involvement.
Several lawmakers have vowed to look into how the state procures its Medicaid contracts, with an eye toward protecting high-performing local plans, when the Legislature begins its regular session in January.
Young could also decide to cancel the proposal and start the bidding process over, which would be the fourth time in the past several years that the state has tried to renegotiate the contracts.
Read more about the ruling here.