TN may lose $500M in federal health care funding

After the General Assembly roundly rejected Gov. Bill Haslam’s carefully crafted Insure Tennessee plan earlier this year, the governor has consistently said that the political landscape must change before he would invest more time and political capital behind his initiative to provide health insurance and incentives to lower income Tennesseans.

He has other initiatives that he would rather focus his strict attention upon, like roads.

Perhaps the loss of about $500 million in federal funds that flow to Tennessee health care providers for treating the state’s uninsured will provoke a change in the political landscape?

Uncompensated care funding

Tennessee is one of nine states that receives significant federal funding under Medicaid Section 1115 waivers, which sends the state about $500 million to defray uncompensated care costs to health care providers for treating uninsured patients. State and local revenue sources add about $250 million more to the uncompensated care reimbursements.

When it was passed in 2010, the Affordable Care Act was designed to dramatically reduce the amount of uncompensated care hospitals and clinics provided by expanding the insured population through the individual health insurance exchanges and through the expansion of Medicaid.

Two years later, the U.S. Supreme Court struck down the provisions in the ACA requiring states to expand Medicaid, while it upheld most of the other provisions of the law.

Tennessee, along with 19 other states, rejected the expansion of Medicaid. The legislature rejected the compromise the governor negotiated with the federal Centers for Medicare and Medicaid Services (CMS) in February, not even bringing the proposal to a vote during a special session called to address the plan.

In the spring, the CMS notified the Section 1115 states that it would intensify the scrutiny it gives to extensions of the waiver.

Tennessee is waiting for official confirmation of a verbal agreement to a six-month extension, until the end of June 2016, of the current 1115 waiver

The scrutiny for states that rejected Medicaid expansion, like Tennessee, has been intense.

Tennessee caught between Florida and Texas

Florida used to receive about $2 billion a year in uncompensated care funding from CMS, and received a letter in April notifying the state that its 1115 waiver status was in question. Florida calls its uncompensated care fund the Low Income Pool (LIP).

Like Tennessee, Florida decided not to expand Medicaid, a decision that influenced the review, according to the letter:

“When the Affordable Care Act (ACA) was enacted, it established a more comprehensive approach to providing health care coverage, including Medicaid, while supporting hospitals that serve communities with the greatest needs. Medicaid expansion would reduce uncompensated care in the state, and therefore have an impact on the LIP, which is why the state’s expansion status in an important consideration in our approach regarding extending the LIP beyond June. We believe that the future of the LIP, sufficient provider rates, and Medicaid expansion are linked in considering a solution for Florida’s low income citizens, safety net providers, and taxpayers.”

In June, Florida, which had anticipated over $2 billion for its LIP, was told that it would receive $1 billion next year and $600 million the year after. The Florida legislature increased funding by $400 million to pay for more Medicaid participants and qualify for a different pool of federal funds.

Florida is getting less than 50 percent of its previous funding and had to pony up another $400 million in state money to avoid dramatic cuts at hospitals around the state.

Those are some big numbers, but they are dwarfed by what the government sends to Texas, another state that refused Medicaid expansion, for uncompensated care. Texas is getting about $4 billion, according to Modern Healthcare analysis.

Texas faces a September 2016 deadline for renewing its waiver.

Tennessee seems to be between a rock and hard place.

Tennessee funding at risk?

Haslam has built a surprisingly strong relationship with federal health officials, and the conversation over a waiver renewal with CMS has been cordial, if thus far unproductive, according to TennCare.

“We don't want to speculate on what the conclusion will be from our ongoing discussions with the federal government,” said Kelly Gunderson, director of communications for the department.

No, they should not speculate, but some of Tennessee’s members of Congress are concerned that while Florida got a 50 percent reduction in payments, Tennessee, which is an irrelevant state to Democrats in the 2016 presidential and congressional election, could get its funding slashed even more than Florida, possibly to $0.

We cannot underestimate the political nature of the CMS decision. As state legislatures play politics, we have to expect that the Obama administration will to. The agency wants, honestly needs, more Americans covered by insurance to make the ACA work.

Gunderson gave an understated response to that possibility: “If there is a reduction to our current funding, it could result in reductions to the program impacting both providers and beneficiaries."

Craig Becker, president of the Tennessee Hospital Association, was blunt about that scenario.

“That would be devastating,” he said. “We have already lost five rural hospitals during the past 18 months, losing $500 million in revenue will cost us more.”

Becker, however, is hopeful, perhaps even confident, that Tennessee will get some kind of renewal.

“We are using the money where it (CMS) intended it to be used, to treat patients."

But Michele Johnson of the Tennessee Justice Center, which represents low income families and helps them get access to health care and other services, made a clear-headed observation: “The budget realities make it clear that Washington can’t keep investing money in these uncompensated care pools. That money is being spent elsewhere.”

We’ve got to trust that our legislators are paying attention.

Reach Frank Daniels III at 615-881-7039 and on Twitter @fdanielsiii.