Texas fights federal freeze of $10 billion in Medicaid funding

Texas Governor Greg Abbott is challenging the federal government’s decision to withhold nearly $10 billion in Medicaid funding from the state. The freeze, implemented by the Trump administration through the Centers for Medicare and Medicaid Services (CMS), targets how Texas uses hospital taxes to generate federal matching funds. While Texas officials maintain their financing complies with federal law, CMS has finalized new guidelines to close what it describes as loopholes used to cycle taxpayer resources back to private providers.

The funding freeze follows the enactment of the One Big Beautiful Bill Act (OBBBA), which codified restrictions on these financing arrangements, effectively bypassing a previous court ruling that had favored Texas. The Texas Hospital Association reports that the delay costs state hospitals approximately $27 million every day.

The shortfall poses significant risks to various healthcare providers. Large urban safety-net systems, including Harris Health in Houston, Parkland Health in Dallas, and University Health in San Antonio, face massive uncompensated care deficits. Additionally, rural hospitals face potential closures of emergency and maternity rooms, while pediatric facilities such as Texas Children’s Hospital and Cook Children’s face budget shortfalls due to high Medicaid patient volumes.