Covering the Vulnerable: Why Expanding Medicaid in Tennessee is Compelling

The Affordable Care Act's goal of making health care accessible and affordable to all Americans remains compelling, and none of its provisions more so than the one that makes all legal residents with incomes of no more than 133 percent of the federal poverty line (FPL) eligible for Medicaid.

The workings of many other components of the act are complicated as all get out, and some were compromised to gain the needed support of the health-insurance industry, drug manufacturers, hospitals, physician groups, and other health-care providers.

A prime example is the individual mandate that requires all but the very poor to buy health insurance or pay a penalty. That was the price the insurance industry extracted for agreeing to a prohibition on denying coverage to people with pre-existing conditions or charging them higher premiums other than specified differentials based solely on age and tobacco use. The act's other mandate on employers with more than 50 workers to offer them health insurance at a premium cost of no more than 9.5 percent of their incomes creates even more complexity, if not coercion.

By contrast, the act's expansion of Medicaid eligibility starting in 2014 is simple and straightforward. The U.S. Supreme Court rightly struck down its coercive feature that would have required all states to do so or else forfeit the federal share of the existing Medicaid program's cost. So now each state is free to choose whether to opt for coverage expansion via a simple means test to everyone up to 133 percent of FPL, which is presently about $15,000 for an individual and $30,000 for a family of four.

Thus, the question hereabouts becomes whether Tennessee should choose to do so. Former Gov. Phil Bredesen created a climate for rejection by branding the mandatory Medicaid expansion "the mother of all unfunded mandates." And Gov. Bill Haslam has tended to perpetuate it by predicting it would cost the state $200 million a year (though he was more circumspect in his comments after the recent Supreme Court decision).

Closer examination reveals that the expanded eligibility wouldn't cost the state anything like $200 million a year anytime soon and would yield Tennessee close to $2 billion a year in federal benefits. For the first three years of the expansion (through 2016) the federal government would assume all of its cost. The federal share would then drop to 95 percent in 2017, and in three further steps to 90 percent in 2020 and beyond.

Estimating how many newly eligible Tennesseans would enroll is just that—an estimate. But the authoritative Kaiser Commission on Medicaid and the Uninsured has placed the number at 300,000. Assuming their cost of coverage in the state's TennCare program is about the same as the roughly $6,000 per year of TennCare's existing 1.3 million enrollees, that means $1.8 billion a year of purely federal dollars going to cover the health-care costs of low-income Tennesseans who aren't presently eligible, principally childless adults. When state sharing of the cost starts in 2017, even after allowing for inflation, it would be more nearly on the order of $100 million than $200 million. That's a whole lot of federal bang for limited state bucks. And all this new money flowing to health-care providers could also prove to reduce the $264 million the state has budgeted this year as its share of $830 million going to Tennessee hospitals to help reimburse them for the cost of uncompensated care. This subsidy is purportedly needed to keep them viable.

Lest it appear that I'm accusing Bill Haslam of distortion, it needs to be pointed out that the expansion of Medicaid eligibility is not the only state cost that's expected to increase. TennCare officials anticipate that an additional 60,000 Tennesseans who are presently eligible for Medicare but not enrolled will sign up as a result of all the publicity attendant to the new law. This "woodwork effect," as it's come to be known, will cost the state more than its share of covering the newly eligible. That's because the federal match rate for those who are presently eligible is only about two to one. So one-third of the $6,000 average cost per enrollee of 60,000 equals $120 million of additional state cost. But this woodwork effect turns on a separate axis from the cost of covering the newly eligible and might be mitigated if the state opts to do so because some of the 60,000 may qualify for the higher federal match rates.

TennCare officials also point to a new federal tax on health insurers as yet another cost the state will have to bear under its contracts with the insurance companies that manage TennCare. This is one of a multitude of revenue-raising measures embodied in the ACA to offset total costs that the Congressional Budget Office has placed at $1.1 trillion over the next decade. But the CBO has also concluded that these revenue-raising measures plus Medicare cost cuts will more than offset the $1.1 trillion cost, producing a slight reduction in federal deficits over a decade.

Of course, if Mitt Romney is elected president in November, everything could change—all the more so if Republicans gain control of the U.S. Senate as well as the House. But Romney's vow to issue an executive order on the day he takes office that allows states to waive participation in the ACA makes him a scofflaw, because he has no authority to do so. And getting the act repealed, as Romney has also vowed to do, will take the same 60-vote majority in the Senate that it took to pass it in the first place—a highly unlikely occurrence.

So Bill Haslam and the state Legislature will in all probability face a decision whether to make TennCare coverage available to hundreds of thousands of the state's most vulnerable citizens at remarkably low cost to the state. Not to cover them would be both uneconomical and, more importantly, immoral.