Special Edition on Medicaid Expansion: March 22, 2013

Medicaid expansion questions and answers

What is Medicaid Expansion?

An aspect of the Affordable Care Act (“ACA”) was designed to provide access to affordable health insurance for as many people as possible. When passed into law, the ACA required states to expand Medicaid or be penalized. However, last summer, the U.S. Supreme Court found that provision within the legislation unconstitutional because each state must be allowed the opportunity to choose whether or not to participate in Medicaid expansion.

Under the ACA, if Tennessee decides to expand Medicaid, the federal government will fund 100 percent of the cost to expand the patient population during years 2014–2016. After this period, funding is gradually reduced until 2020, when it levels out at 90 percent for the federal government’s responsibility while Tennessee assumes the remaining 10 percent. By law, the federal government will continue to fund the expanded program at 90 percent after 2020.

According to the Tennessee Division of Health Care Finance Administration, with Medicaid expansion, Tennessee will spend $200 million in state funds but will receive $6.5 billion from the federal government.

Who would be covered with Medicaid expansion?

Medicaid expansion will provide health insurance coverage to an estimated 180,000 to 224,000 uninsured Tennesseans. This group is comprised of mainly adults (including parents of children who are in TennCare but do not qualify for coverage themselves) who have a household income below 138 percent of the Federal Poverty Level, meaning maximum earnings of $15,415 for a single person to maximum earnings of $31,809 for a family of four.

How significant is the problem of uncompensated care in Tennessee and specifically the mid-state region?

In 2011, Tennessee health care professionals provided $1 billion in uncompensated care – a term that includes write-offs for charity care, care for the medically indigent and bad debt. Programs that have traditionally provided offsets to losses through uncompensated care, such as Disproportionate Share Hospitals (DSH) and Medicare bad debt reimbursement, are being greatly reduced under changes within the ACA. Some of these reductions were designed as offsets specifically to fund portions of the ACA. VUMC provides the largest share of uncompensated care in the region. In 2012, VUMC provided $477.4 million in uncompensated care to the citizens of Middle Tennessee. This figure represents one-half of all the uncompensated care provided by hospitals in Davidson County.

How will this decision – passage or rejection of Medicaid Expansion - impact Tennessee hospitals in general and Vanderbilt in particular?

Tennessee Hospitals:
• The Tennessee Hospital Association (THA) has estimated that Medicare cuts that are already in place and those being considered will increase the total cost to Tennessee hospitals to $2.9 billion over five years and $7.4 billion over 10 years. Expanding Medicaid would help compensate for these reductions.

• The THA estimates that without expansion of Medicaid some Tennessee hospitals may be forced to reduce services or face closure if they do not find additional funding. The THA also estimates job losses across Tennessee due to these cuts of 7,000 to 11,000 jobs.

• VUMC has already sought and achieved $40 million in operational expense savings to help address reduced funding through the ACA. With Medicaid expansion some of these lost funds would come back through greater numbers of insured, but not enough to address long-term financial considerations. This is why, in part, an effort to identify another $50 million in operational expense reductions has been announced for 2013-2014.

What are the pros and cons of Medicaid Expansion in Tennessee?

Opponents’ Stance on Medicaid Expansion:

• Some are concerned the federal government will not meet its obligations for expansion funding levels that would keep expenses at the federal level and out of states’ budgets. Yet, governors in other states have proposed passing nuanced legislation to allow their states to withdraw from expansion if federal funding drops below promised levels. These exit strategies are called “circuit breakers.”

• Some are worried about the $200 million Tennessee will spend after federal funding drops below 100 percent. Tennessee providers are experiencing reductions in Medicare payments while Tennessee citizens are already paying federal taxes to fund expansion. If expansion happens, then tax dollars will return to Tennessee and be invested in improvements to the health of its citizens through greater access to preventive care and improved management of chronic conditions. However, if Tennessee chooses not to expand then the state’s tax dollars will be invested in health care services for citizens of other states.

• Some are concerned about increasing the national debt if Medicaid is expanded in Tennessee. Yet, the amount saved in one year on the federal level if Tennessee decides not to expand is only 0.007 percent of the national debt. We believe the positive impact to both the health and Tennessee’s economy far outweighs the economic impact on the federal debt.

Proponents’ Stance on Medicaid Expansion:

• Tennessee will receive $6.5 billion from the federal government for Medicaid expansion coverage for only $200 million in Tennessee State funds.

• Expansion will reduce uncompensated care costs for both providers and the state.

• Expansion will improve health for Tennesseans: A study by Harvard of early expansion states published in the New England Journal of Medicine showed:

      — A 6.1 percent decline in deaths - For Tennessee, this would mean an estimated 1,100 fewer deaths per year.
      — A 21.3 percent decrease in the rates of delayed care due to financial constraints.
      — A 3.4 percent increase in rates of positive self-reported “good” or “excellent” health status.

In our state, the TennCare 2012 Quality Assessment and Performance Improvement Strategy report shows TennCare has improved health for our citizens.

• Provides patients the opportunity to be managed appropriately
      — Patient access to care improves with an increase in preventive care and wellness.
      — Emergency department visits shift to primary care providers.
      — Patient engagement and compliance with medication regimens improve.

• Creates other societal value
      — Tennessee will add 18,000–20,000 new jobs, with accompanying tax revenue
      — Less absenteeism and increased productivity for businesses
      — No financial penalty for businesses whose qualified employees move to a Medicaid program
      — Improved financial health and fewer bankruptcies related to medical bills – 60 percent of all bankruptcies are related to unpaid medical bills

What is the process for passing Medicaid Expansion in Tennessee?

Governor Haslam will announce a decision on whether he favors Medicaid expansion in Tennessee by the end of March. Because the State constitution gives the legislature the power to authorize all expenditures in State government, the issue is also one for the State Legislature. C. Wright Pinson, MBA, M.D., deputy vice chancellor for Health Affairs and CEO of the Vanderbilt Health System, has testified before legislative committees in both Tennessee’s House and Senate. There are competing bills on this issue before our legislature.

Nationally, Medicaid expansion has moved beyond a partisan debate. To date, almost half of all states have chosen to expand Medicaid while another four are currently leaning toward expansion.