Tennessee Rejects Medicaid Expansion—For Now

Published April 22, 2013

Tennessee Gov. Bill Haslam announced he will not pursue expanding TennCare, the state’s Medicaid program, under the auspices of President Obama’s health care law. He will, however, examine the possibility of expanding in the future.

Galen Institute president Grace-Marie Turner praised the March 27th announcement.

“This is a huge victory, as the pressure was intense in Tennessee for him to expand” the program, Turner said.

Inspired by a similar approach considered in Arkansas, Haslam had attempted to convince the Obama administration to authorize a program which would shift newly enrolled Medicaid recipients to the exchange created by Obama’s law. But Rep. Jeremy Durham (R-Franklin) says this approach is not feasible, now or in the future.

“Gov. Bill Haslam’s plan to use the federal dollars to purchase private insurance does address the cost-shifting issue but is unlikely to meet approval with HHS, and it, very importantly, ignores the long-term burden on state and federal taxpayers,” Durham said.

Raising Costs for the Taxpayers

Durham notes the Medicaid expansion will cost the state a significant amount of additional money, no matter what method of expansion is used.

“If Tennessee does not expand Medicaid, the money which would have been used for that purpose would not go to other states—it would stay with taxpayers and not trigger increased deficit spending,” Durham said. “If Tennessee does expand Medicaid, the state would take money from taxpayers in other states—some of whom have chosen the responsible path of not expanding—and also cause an increase in our national debt.”

Trey Moore, director of policy at the Beacon Center of Tennessee, a state think tank, notes those backing the expansion described it as “free money,” a description he rejects. 

“There are a couple of issues with the notion that Medicaid expansion is being paid for by ‘free federal money’,” Moore said. “First, there’s really no such thing as purely ‘federal’ money. It all comes from taxpayers who reside in a state. Second, and more importantly, it’s being paid for by putting it on the nation’s credit card. Taxpayers will eventually have to pay the bill . . . with interest.”

Not Losing Tennessee Money

Moore says the idea Tennessee’s money would go to other states is simply false.

“The notion that money will go to other states if Tennessee refuses expansion is both a common refrain and a misconception,” Moore said. “The amount of Medicaid dollars California, Kansas, or Kentucky receive is based on the states’ respective federal matching payment (FMAP) rate and the amount of Medicaid enrollees within each state.”

FMAP is the rate at which the federal government matches state Medicaid spending, usually between 50 and 60 percent.

“States stand neither to gain nor lose federal Medicaid funds relative to another state’s decision on expansion,” Moore said. “This is no less true for Tennessee.”

Turner agrees.

“This is not like the Stimulus Bill, where more than $800 billion was going to be divided up. This is entitlement money. If a state doesn’t expand Medicaid, the money isn’t spent,” Turner said.

State Share Could Increase

Given the past history of budget proposals, Turner says states cannot assume the federal government will live up to its agreed-upon 90 percent funding rate for the expansion in the long term.

“The feds absolutely cannot be relied on to keep their commitment to provide 100 and then 90 percent funding for the Medicaid expansion population,” said Turner. “President Obama has proposed in his last two budgets a ‘blended rate’ that is designed to reduce the federal Medicaid match by up to $200 billion over 10 years.”

Durham said he expects states that expand will suffer reduced matching rates in the future.

“The federal government has gotten itself into a very precarious financial situation,” said Durham, “and is in no condition to offer such a ‘bargain’ to states. President Obama has already mentioned blending the matching formula for the expanded population with the regular Medicaid matching formula. Thus, even if the 10% cost to states long-term was not enough to cause concern, the enhanced matching formula for the expansion population is likely to change.”

Special Interests Back Expansion

Health-care providers and other special interests are pushing Medicaid expansion across the country, including in Tennessee, Turner says.

“The hospitals are the biggest interest group pushing for Medicaid expansion. It is very shortsighted, however,” Turner said. “They lose money on virtually every Medicaid patient they see. Are they going to make it up in volume?”

Durham says hospitals will simply shift the costs of seeing Medicaid patients onto private insurers, as they have in the past.

“Expanding a broken Medicaid system would not provide quality access to care for the uninsured and would increase private insurance premiums due to the ‘cost-shifting’ phenomenon involving hospitals losing money on Medicaid patients but making up the difference by charging more to private insurance carriers,” Durham said.

Turner says Medicaid’s poor outcomes may help explain why it isn’t 100% adopted among those already eligible—a sign that the program needs reform, not expansion, she adds.

“Medicaid is an antiquated program that desperately needs to be modernized,” said Turner. “Why would anyone want to expand a program that is worse for millions of people than being uninsured and which is still breaking the backs of state budgets?”