Client Alerts
March 29, 2013

Tennessee opts out of ACA Medicaid Expansion - with a caveat

Stites & Harbison Client Alert, March 29, 2013

by Stites & Harbison, PLLC

On March 27, 2013, Tennessee Governor Bill Haslam addressed a joint session of the Tennessee General Assembly to announce his decision as to whether Tennessee will participate in the Medicaid expansion option under the Affordable Care Act (“ACA”). The Governor announced Tennessee will not opt in to the Medicaid expansion as envisioned by the ACA. Instead, the administration is proposing to the federal government an alternative “Tennessee Plan” (discussed below) intended to provide health care coverage to the expanded population while also protecting Tennessee taxpayers from perceived future risks.

Under the ACA, each state is given the option of significantly expanding its Medicaid eligible population. In return, the federal government will pick up 100% of the additional cost of providing care for the expanded population during the first three years following expansion, with the federal share decreasing thereafter. (Currently the federal government provides approximately 65% of Medicaid funding, with the balance borne by the state). The ACA provides those states which do not opt in to the expansion face the prospect of losing all federal Medicaid funding (including funding for the currently covered Medicaid population). This “cram down” provision was invalidated by the United States Supreme Court last year in National Federation of Independent Business, et al. v. Sebelius, et al. Following the Supreme Court’s decision, states are free to opt in to the Medicaid expansion and receive the more generous federal funding for the expanded population, or opt out and forego only the federal funding that would have covered the expanded population.

To set the stage for Governor Haslam’s decision, this is a Republican governor with a Republican super-majority in both houses of the Tennessee General Assembly. Conservative Republicans have urged the Governor to opt out of the Medicaid expansion. The likely sources of the opposition to the Medicaid expansion include: (1) ideological opposition to “Obamacare” and a reluctance by lawmakers to be identified as a supporter or facilitator of the same; (2) a general distrust of the federal government’s future funding commitments for the expanded Medicaid population; and (3) Tennessee’s rocky experience, including federal mandates and funding, for the TennCare program (Tennessee’s Medicaid managed care waiver program).

On the other hand, many segments of the health care provider industry in Tennessee, especially Tennessee hospitals, have strongly supported the Medicaid expansion and have urged to Governor to opt in for Tennessee. The reason for this support are many, and include: (1) improved access to health care by currently uninsured citizens; (2) the anticipated significant decline in the amount and degree of uncompensated care the hospitals would be required to provide as a result of the expanded Medicaid population; and (3) a lessening of the financial stress being experienced by many Tennessee hospital, especially small community hospitals. Many also contend a general economic stimulus would likely be spurred by the additional federal dollars coming into the state’s economy.

Against this backdrop the administration proposed what Governor Haslam dubbed the “Tennessee Plan” as an alternative to a straight opt in to the Medicaid expansion option. The intent is to make the federal dollars work “smarter” for Tennessee by avoiding costly hospital While details are sketchy at this time, the proposal is a hybrid plan by which the same federal dollars which would have covered the expanded Medicaid population in Tennessee would instead be used to purchase private health insurance for the expanded population. Payment for the care for this expanded population would be “pay for performance” – payment to care providers would be tied to medical outcomes rather than a traditional fee-for-service payment methodology. re-admissions, unnecessary tests and procedures, and otherwise cutting waste. Tennessee’s participation in the arrangement would be subject to continued approval annually by the Tennessee General Assembly. This is intended to avoid unwarranted future federal mandates and future funding cuts or other negative funding decisions.

Details of the Tennessee Plan were not disclosed during the governor’s address. But it was made clear the purpose and intent is to maintain as much as possible the current level of Medicaid funding by the state, even after the federal government’s funding level would decrease (and the state’s would increase) under the Medicaid expansion option set forth in the ACA. It was not made clear in the governor’s address the extent to which this proposal had been discussed with the Centers for Medicare and Medicaid Services (“CMS”) of the federal Department of Health and Human Services, but Governor Haslam did state that approval of CMS had not been received. The administration will continue to negotiate with CMS in an attempt to receive its approval for the Tennessee Plan. Future health care coverage for hundreds of thousands of Tennesseans, and the economic health of Tennessee hospitals and other health care providers, hang in the balance.

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