What does Medicaid Expansion actually do?

Medicaid, TN style
One of the things I’ve seen over and over is a misunderstanding of what Medicaid expansion is, and in turn, how it would impact both people and providers, including hospitals, if enacted.

To get there, we have to first understand what Tennessee’s system does now, how efficient it is, what changes would come under expansion, and finally, what changes are coming no matter what happens.

To that end, you might ask…

What is TennCare?

Here’s a description from the State website:

TennCare is the State of Tennessee’s Medicaid program that provides health care for 1.2 million Tennesseans and operates with an annual budget of approximately 8 billion dollars.

TennCare is one of the oldest Medicaid managed care programs in the country, having begun on January 1, 1994. It is the only program in the nation to enroll the entire state Medicaid population in managed care.

Most of us are familiar with HMO’s, in essence, that’s how TennCare works, though the premium is funded via the Federal and State government.

You can see just how much of TennCare is funded by the State and Federal governments by clicking here and navigating to page B-154, which lists state and federal appropriations for the past three years. Here’s the distribution for those years:

Federal Government matches 2:1 for current enrollees
You’ll notice that in 2010-11 the federal government’s portion of funding was 3 times that of the state.

In the years since, including next year’s projected budget, that ratio drops to 2:1.

This is due to the American Recovery Reinvestment Act (ARRA), which increased the Federal government’s contribution to help save TennCare from huge budget cuts.

You’ll also note that in the coming year, TennCare appropriations increase by nearly $900m.

This is likely, to help cover normal increases in healthcare costs as well as the nearly 100,000 people in Tennessee that qualify for TennCare , but are not on the rolls due to enrollment caps, or simply not knowing they’re eligible. This is required by ACA to receive Medicaid matching funds.

As the individual mandate comes on line in 2014, these people will finally gain access to something they should have been able to use for years.

A Case Study in Government Efficiency

TennCare is more efficient than any other insurance delivery method
TennCare is more efficient than any other insurance delivery method
There are lots of people out there that are convinced Government cannot provide services more efficiently than business.

Some of this is due to the nature of government, which provides services, like road construction, for the common good, knowing that the initial cost may eventually be covered by increased efficiency, but the ongoing maintenance costs may not.

Imagine where we would be as a nation without our network of Interstates and Highways. There’s no way private business would invest the capital necessary to accomplish this with the efficiency of government. Our highways would be a patchwork of spaghetti serving the interests of those private businesses rather than the common good.

TennCare is very similar to this example. It is more efficient than any other insurance delivery method. Last Wednesday, after Gov. Haslam announced his intention to not expand Medicaid in Tennessee, lots of people found lots of reasons that was a bad idea. One of the better arguments is the efficiency with which TennCare currently provides insurance to those in need.

According to the state government’s TennCare budget report, not only is the government more efficient, costing half of what private insurance costs per person, but it also manages inflation better, holding it to half of National Medicaid inflation, and more than half of commercial insurance.

This is one reason Gov. Haslam’s insistence on using expansion dollars to purchase private care for individuals doesn’t make much sense, but we’ll cover that in the next post.

Understanding Uncompensated Care

Feds bear the burden, but it is somehow burdensome?
Feds bear the financial burden, but expansion is somehow burdensome?

Medicaid was created to cover people who don’t have the money to purchase health insurance. The expansion of Medicaid helps cover those who couldn’t even purchase health insurance with financial help from the government. Currently, Medicaid only covers people in poverty, and children, depending on age, up to 133% of poverty.

In the past this meant many families earning between the poverty level and as much as 250% of poverty ($59,000/yr for a family of 4) couldn’t afford coverage if it isn’t offered by one of their employers, or if the employee contribution is too high.

It creates is a huge hole in coverage of people. While folks nearing the middle income area may be able to pay out of pocket costs for doctor visits, folks down at the lower end of the scale can’t.

Full time minimum wage is 138% of poverty. I don’t know of too many places offering minimum wage that also offer insurance that’s worth the plastic the card’s made of. And at $15,000 a year, I’m not sure someone could even afford the employee contribution, or the co-pays.

So what happens is, folks in this situation go to the Hospital when things get really bad. Hospitals treat them because, unlike other areas of the economy, life is valued more than getting paid.

When the person can’t pay their bill, and proves to the hospital they are too poor to pay, the hospital calls it “uncompensated care” and gets reimbursed a portion of it from the state, through federal dollars.

Folks outside of Memphis may not remember back in 2010 when we were faced with the real possibility that our public hospital, The MED, might close due to unusually high rates of uncompensated care.

Commissioner Mike Ritz (R? – Germantown) led the charge, alleging the state had not been giving The MED its fair share of uncompensated care funding. Metro Nashville General had the same problem a few years before.

Honestly, I don’t remember what came of it. But such battles could be moot under ACA where everyone is covered.

Ending Uncompensated Care with Compensated Care

Under ACA, everyone must have some kind of insurance or pay a penalty. Under the law, everyone making between 101% and 400% of poverty ($23550 – $94,000yr for a family of 4) will receive some kind of subsidy to help pay for the cost of healthcare.

That subsidy effectively replaces the amount spent on “uncompensated care”. The idea being, its better to use that money to get people in care earlier so they don’t end up using the Emergency Room as their primary care facility.

Currently, Medicaid in Tennessee provides healthcare for adults earning poverty level wages or less. What Medicaid expansion would do is cover people up to 138% of poverty or $32,500 for a family of 4.

What this expansion addresses is the reality that folks under a certain income threshold just won’t be able to shoulder the burden of the individual mandate, and, in order to make the policy work, must be extended care benefits.

By choosing not to accept the expansion dollars, at a time when uncompensated care dollars will be disappearing, the Haslam administration has put the fiscal viability of hospitals that serve poor people in serious danger. In effect, this decision punishes hospitals for their circumstances…not being in a wealthy enough community.

The Working Poor Suffer Most…As Usual

As I’ve shown in previous posts, most of the facilities in the 30 counties that could lose their hospitals have relatively high rates of poverty. In reality, every hospital that helps care for poorer people is at risk, including four hospitals in Memphis (The MED isn’t one of them), Metro Nashville, Mercy Medical Center West in Knoxville, and Erlanger in Chattanooga.

In short, in addition to endangering hospitals all over the state, this policy will hurt hospitals all over that serve poorer populations because these individuals will not be able to purchase care, due to their income, yet still need it, by virtue of being human.

The gap in compensation will no longer be covered, causing huge economic problems for these hospitals and making travel to hospitals longer for people who already have so many things stacked against them.

Based on Household income data from the Census Bureau, nearly 30% of households in Tennessee make 138% of poverty or less. But everyone in those areas stand to lose, regardless of income, as their hospitals struggle to survive under the weight of non-expansion.

And while the 15 counties without hospitals may not seem like a huge issue, it is for the folks that live there. I have it on good authority there are more who are in danger, or have already closed.

The 30 that stand to lose their hospitals, and the economic/health crisis that creates may not be compelling, until you consider the cascading effect it would have on hospitals across the state, forcing people who cannot afford care into hospitals that were once financially healthy, but due to largely political considerations, are now in danger.

That’s all thanks to the unrealistic demands of the “Tennessee Plan”, as Gov. Haslam has dubbed it. Which is the subject of my next post.

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