Houston-based Texas Children's operating losses have snowballed to $354.8 million (-7.8% margin) for the nine months ending June 30, a striking drop from the $139.1 million operating gain (2.9% margin) the system posted in the previous nine-month period, according to financial documents published Aug. 20.
Earlier this month, Texas Children's announced plans to lay off 1,000 employees (5% of its workforce) to combat rising operating losses. The health system also has also reduced the size of its executive leadership team by about 10% and cut their pay, as well as decreased the size of its executive team by not filling vacant positions.
Despite these cutbacks, there is little respite on the horizon for the health system. Texas HHS plans to drop Texas Children's Health Plan — as well as Fort Worth-based Cook Children's and Corpus Christi-based Driscoll Children's — as Medicaid administrators.
The decision would see Texas' three largest nonprofit children's health plans miss out on multibillion-dollar Medicaid and children's health insurance contracts.
Texas tentatively awarded most of its Medicaid STAR and CHIP contracts to Blue Cross Blue Shield of Texas, Molina Healthcare, Aetna and UnitedHealthcare in March. If the new contracts — worth $116 billion combined —- are implemented, almost 1.8 million Medicaid beneficiaries in the state will have to move to new insurers by 2025.
Executives at Cook Children's and Driscoll Health told The Texas Tribune in April that their health plans will likely shutter if they are not awarded Medicaid contracts from the state.
Texas Children's $354.8 million operating loss for the first nine months of fiscal 2024 includes a $199.1 million loss resulting from its health plan, which represents a $271.2 million decrease in operating income from the prior year.
Medicaid redeterminations also have had a significant impact on Texas Children's Health Plan's membership, which was 444,666 at June 30, 2024 — a decrease of 23.5% when compared to the prior year.
"Based on Dec. 31, 2023, results and expected results for the remainder of the year, on a stand-alone basis [Texas Children's Health Plan] anticipated generating a loss on its current contracts with state-funded Medicaid and Children's Health Insurance Program programs ending August 2024," according to the financial report.
The health plan's decline in its operating results was primarily driven by a decrease in membership and premium revenue, and increased utilization on a per member per month basis.
"Under accounting guidance for insurance contracts, TCHP recognized the full anticipated loss for the remainder of the contract period in December 2023 as a premium deficiency reserve totaling $60.5 million," according to the report. "TCHP's loss for the nine months ended June 30, 2024, includes a net remaining PDR of $23.5 million for the months of July and August, the remainder of the contract period. Excluding the premium deficiency reserve, TCHP had an operating loss of $175.6 million."
After accounting for nonoperating items, such as the health system's investment returns, Texas Children's reported $266.2 million in net income for the nine months ending June 30, down from a net income of $561.2 million in the prior-year period.