Tenncare's Murky Future

Year end will bring to a conclusion the eight-year, near Faustian bargain between the state and the federal government that is known as TennCare. In return for special dispensations of federal funds to shore up to its Medicaid program, Tennessee agreed to extend Medicaid benefits more expansively than any other state.

In addition to the 800,000 indigent and disabled Tennesseans for whom these benefits are mandated, the state opened the rolls in 1994 to anyone who lacked an employer health insurance plan. For a time, the state was able to contain the costs by clamping down on payments to health care providers. But as the ranks of otherwise insured enrollees swelled to more than 600,000 presently, and as doctors began deserting the program in droves for lack of adequate reimbursement, TennCare outlays have been escalating at double digit rates in each of the past four years just to keep it from collapsing.

The $5.6 billion and rising question now facing the state is what to do when the eight-year federal contract ends. Based on widespread perceptions that TennCare is broke, a groundswell has been rising to fix it. But this outcry doesn't begin to comprehend the complexities of the problem or the fact that the state can't proceed to solve them unilaterally even if it knew how. Because Washington continues to control the purse strings, through its 2-to-1 match of state dollars, a new deal—technically termed a waiver—must be struck that picks up where the old one leaves off.

Last fall a gubernatorially appointed Commission on the Future of TennCare made a set of recommendations on how to do so in ways intended to curtail or at least stop the escalation of the program's costs. Most of them pointed toward ways to get health care coverage of non-Medicaid enrollees on a lower cost footing. Despite contentions that many of these uninsured individuals had been "dumped" onto TennCare by employers and insurers, the commission spurned the notion that they could simply be dumped off the rolls in turn. "The state should pursue federal approval to renew the current TennCare...waiver to keep from destabilizing the health care coverage...relied upon by about 500,000 people [now upwards of 600,000] in the current TennCare expansionary population," the commission concluded. The vast majority of state legislators would agree with that.

The Sundquist administration has seemingly been slow on the uptake in crafting a new waiver application for submission to the federal Center for Medicare and Medicaid Services (CMS) that was until recently known as HCFA. TennCare's overseer John Tighe now says he expects to make recommendations to the governor in September, drawing upon the commission's and comments received at public hearings across the state in June and July. But Tighe's ability to shape a workable new scheme of things and to build acceptance for it is much in doubt.

The commission's recommendations sought to lower the state's cost of covering non-Medicaid enrollees in two ways: 1) by channeling those who have access to employer health insurance onto their employer plans with state subsidization of the employee's share of the premium on an income based sliding scale; and, 2) by placing those who don't have such access into a separate pool with lesser benefits than are federally mandated for Medicaid eligibles. The premium subsidy approach was labeled TennCare Assist and the reduced benefit pool TennCare Standard. The commission also addressed ways in which employers that don't offer health insurance and insurance companies that benefit from TennCare's coverage of individuals deemed uninsurable could be assessed a share of the program's cost. While stopping short of making specific recommendations for what is colloquially termed "play or pay," the commission urged that, "policies be devised so that every entity that benefits from the existence of TennCare is expected to contribute financially to supporting TennCare." The prospects for each of these avenues for arresting the growth of TennCare's cost to taxpayers at large is addressed in turn.

TENNCARE ASSIST

Premium assistance programs to make employer health insurance plans more affordable to low income workers and their children have been tried in a handful of other states with very limited success. In a paper last year assessing them, George Washington University researcher Karl Polzer concluded that "given the considerable hurdles that states must overcome, it seems unlikely that they will be able to cover a significant number of uninsured children through programs accessing [federal] funds to subsidize job-based health coverage."

Despite such admonitions, Rhode Island pushed ahead with the introduction of a premium assistance program earlier this year as a way intended to reduce the cost of its RiteCare program. To the disappointment of state officials, only 40 employers and 100 individuals have elected to participate—to which the chairman of a business advisory council involved in formulation of the program would say, "I told you so."

Employers have proven averse to picking up their share of the premiums for workers who hadn't previously participated in their health plans. They've also resisted state requirements for ongoing verification of employment status, health plan benefits and premium allocations. "All this has done is create a lot of red tape and cost shifting from the state to employers, and the timing couldn't have been worse in relation to the economy," says the advisory council's chairman, John Gregory, who is president of the Northern Rhode Island Chamber of Commerce.

Even if a premium assistance program should overcome all the impediments to widespread participation, it's unclear whether it would hold down the state's cost. In addition to the otherwise uninsured Tennesseans on TennCare's rolls, there are some 400,000 totally uninsured people in the state, many of whom would likely qualify for premium assistance. Subsidizing their premiums could end up costing the state more than it might save by getting employers to bear a portion of the cost of those on TennCare.

"Sometimes innovations instead of being helpful end up costing you," observers Vickie Gates, vice president of the Academy for Health Services Research and Health Policy in Washington.

TENNCARE STANDARD

The federal CMS prescribes Medicaid benefits and until just recently has insisted that the same benefits be extended to all other TennCare enrollees as a condition of federal funding. On Aug. 6, however, CMS promulgated a new "demonstration initiative" that would allow states more flexibility in setting benefits for the others.

To qualify, TennCare Standard would have to offer benefits equivalent to those provided by Blue Cross/Blue Shield plans for federal and state employees. According to Blue Cross spokesman Ron Harr, these are more limited than Medicaid in several areas: prescription drugs, dental, visual and convalescent care and medical equipment. Moreover, they do not impose the Early Diagnostic Screening and Preventive Treatment requirements for young children that are mandatory under Medicaid.

Tighe has no estimate of the savings that might result from reducing benefits, but CMS' intent is to channel them into covering more uninsured people, especially via their employer plans. "The purpose of [the] demonstrations is to reduce the number of uninsured individuals, particularly with incomes under 200 percent of the FPL [Federal Poverty Line]... States should present detailed coverage goals in their submissions," the CMS announcement states. So it's unclear whether the TennCare Standard approach will end up saving the state money because of the federal strings attached. Without federal matching funds, the approach is a non-starter.

PAY OR PLAY

The case for making employers who don't offer health insurance pay for the privilege of not doing so seems compelling to all but the employers who'd be saddled with the cost. But their clout has been sufficient to get "pay or play" legislation quashed in three states that flirted with it in the 1980s (Massachusetts, Oregon and Washington).

In addition to the political opposition there are also legal obstacles to such legislation. The federal Employee Retirement Income Security Act (ERISA) precludes states from regulating employer benefits generally. But in the case of health plans, it's unclear where this pre-emption ends and state jurisdiction over insurance matters begin.

Kentucky tried using its insurance regulatory authority a few years back to require all health insurers doing business in the state to offer individual coverage to all comers. The result was that all of the insurers pulled out of the state, jeopardizing coverage of some 70,000 individuals, until the requirement was rescinded.

The one facet of the commission's recommendation that seems feasible is requiring insurers to bear some of the cost of covering unhealthy individuals whom they turn down and who then end up on the TennCare rolls as uninsurable. Insurance companies contribute toward the subsidization of the high risk pools in most of the 28 states that have them and once did in Tennessee. The legislature's TennCare Oversight Committee is addressing this approach. Interestingly, though, its chairman, Rep Gene Caldwell of Clinton, is looking primarily to insurance industry officials rather than state officials for guidance.

OTHER WINDS OF CHANGE

The best hope for major TennCare cost relief may lie in Washington, not Nashville. If Congress extends Medicare to cover drugs, it could relieve the state of much, if not all, of the $350 million ($120 million state dollars) TennCare spent last year on drugs for indigent senior citizens. But it's unclear when, or on what basis, Congress will act. If Medicare drug coverage is elective, with premiums attached, then why should seniors getting them under Medicaid at no cost (per CMS) give up that entitlement?

Meanwhile, drug costs for these "duals" (Medicaid/Medicare), as they are known, are the biggest single contributor to TennCare's escalating outlays. In part that's due to rising drug costs and use nationally. But the growth in TennCare far exceeds the norm. According to Blue Cross' Harr, TennCare drug consumption is up 22 percent this year compared to 11 percent in the company's commercial health plans. He attributes the differential to a consent degree in what's known as the Grier case, under which the state agreed, pending an appeal, to furnish TennCare enrollees with a two week supply of any drug that's discontinued.

At the same time, the state has gotten a $518 million bill from CMS for recovery of federal matching funds obtained by dint of a sham, if not a scam, involving nursing homes. Until the Legislature repealed it this year, a state nursing home tax generated about $40 million a year that begot a 2-for-1 match. But the tax proceeds were then remitted to the nursing homes via what were known as "granny grants." Finance Commissioner Warren Neal hopes to settle with CMS for substantially less, but meanwhile it's withholding $16 million a quarter from TennCare that must be covered with state funds.

Further polluting the atmosphere for TennCare reform is the smokescreen that overhangs it. Getting any information out of the TennCare Bureau is like pulling teeth for a journalist, and health care providers, insurers, affected trade associations, even key legislators all say they are being kept in the dark as well.

"No matter what you say, Tighe is defensive. Legislators are begging for information and can't get any help," says Senate Republican leader Ben Atchley.

When then-Gov. Ned McWherter implemented TennCare, he was able to do it by administrative fiat with next-to-no legislative involvement. But the legislature this year stipulated that any new waiver be approved by the House and Senate Finance Committees as well as the TennCare Oversight Committee. When John Tighe comes before them with whatever his waiver recommendations may be, their disposition may be to fix him as much as TennCare. And the state may be destined to stay broke in more ways than one.

© 2001 MetroPulse. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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