Term Paper: Reputed Health Crisis

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[. . .] Business Perspectives; 9/22/2002; Wright, Douglas

Despite ongoing concerns about TennCare's cost and success, the program has provided health care coverage to Tennesseans at a reasonable price while benefiting the overall health care economy of Tennessee. This article examines some of the questions commonly asked about the TennCare program.

Why Was TennCare Created?

TennCare was created to help solve the state's budget problems. In 1993, Tennessee faced a budget shortfall of over 250 million state dollars caused largely by increases in Medicaid spending. State officials were forced to choose between massive cuts in spending or large increases in taxes. Cutting Medicaid spending would have resulted in the loss of about two federal matching dollars for every state dollar cut, a loss of hundreds of millions of dollars. The alternative would have been massive cuts in the number of Medicaid services. (1)

That same year, toward the end of the legislative session, Governor Ned McWherter proposed a radical new plan called TennCare. The plan would cover hundreds of thousands of additional Tennesseans with health insurance for about what the state was already spending on Medicaid. It would eliminate (2) an unpopular health services tax that generated over $400 million annually. (3) To obtain additional federal matching dollars, the state would instead leverage dollars already spent on the health care system on indigent care and care to the uninsured.

Does TennCare Cost Too Much?

TennCare's cost compares favorably to that of other states' Medicaid programs. Although the current public perception of TennCare may be of a program out of financial control, this is not the case. In 1998, the latest data available from the federal government showed that Tennessee had lower spending per enrollee than any other state. (4) From 1992 to 1998, Tennessee's ranking in payment per recipient went from 14th to 16th place of 16 southern states. (5) In 1999, Tennessee had the lowest average medical services payment per recipient of 12 southern states reporting. (6)

The program's per person cost increase from 2000 to 2001 was similar to increases in private employers' insurance plans. TennCare's recent cost increases reflect the health care marketplace nationwide. TennCare's average cost per recipient increased about 10.7% from fiscal year 2000 to fiscal year 2001. (7) A nationwide survey of employers found that health care premiums increased 11.0% from spring 2000 to spring 2001. (8) Other nationwide surveys indicate an overall premium increase of 10.3% for health plans and an average 13.0% increase in large employer health benefit costs for 2001. (9)

TennCare's average costs per person are similar to those of employer health plans. According to a study of 2,734 companies released by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust, average annual premiums for employer-sponsored plans grew to $2,650 for single coverage and to $7,053 for family coverage from spring 2000 to spring 2001. (10) Estimated state and federal spending per TennCare recipient in fiscal year 2001 was about $2,986, excluding long-term care costs. (11)

Has TennCare Wasted Millions of State Tax Dollars?

In fact, when compared to what the state might have spent under its old Medicaid program, TennCare has saved significant state dollars. An analysis by the Comptroller of the Treasury found that the TennCare program cumulatively saved the state over 2 billion state tax dollars. The Comptroller compared Medicaid spending growth for TennCare to spending in Southeastern states for 1993 through 2001. This analysis compared state TennCare expenditures with what the state would have spent if TennCare expenditures had grown at the same rate as that of the Southern Legislative Conference states. The analysis compared 1993 Medicaid spending and other state dollars folded into the TennCare program to TennCare spending for 1994 through 2001. (12)

An independent report on TennCare by The Urban Institute shows that the TennCare program saved 245 million state tax dollars and 455 million federal tax dollars from 1994 through 1998. (13) The estimate does not adjust for the drastically increased enrollment in TennCare.

One spending estimate from The Urban Institute report, selectively used by some TennCare reform advocates, is not based entirely upon analysis of actual TennCare expenditures. This estimate indicates that TennCare cost $3.8 billion more between fiscal years 1994 and 1998 than would have been spent under the former Medicaid program, when all costs are included. (14) However, the estimate includes about $4.5 billion in assumed cumulative projected spending accounted for by charity care, local governments, and patient premiums. The report states: "This [estimate] assumes that the forecast provision of charity care, local government contributions, and collection of patient revenues took place. To the extent that they did not, Tennessee expenditures on TennCare were lower than these estimates." (15) Aside from premium dollars, it is virtually certain that these additional expenditures would have occurred in the health care system regardless of TennCare's existence. Unlike other states, TennCare has enabled the st ate to capture some of these costs within a managed system to receive federal matching dollars.

Because Tennessee's per capita income has increased relative to that of other states, Tennessee's portion of TennCare costs has also increased. The federal government's contribution to states' Medicaid programs is based upon each state's per capita income relative to that of other states. This matching contribution is called the federal medical assistance percentage (FMAP).Tennessee's per capita income ranking rose from 37th in 1989 to 35th in 1999. (16) As a result, Tennessee went from paying about 30.0% of total Medicaid cost in 1990 to paying about 37.0% in 2000, the largest increase in state share of any state. (17) Based upon the fiscal year 2002 TennCare budget, excluding long-term care services, Tennessee paid over 230 million more state dollars for TennCare in 2001 than it would have if the state's per capita income had not increased during the period. (18)

Does TennCare Cost Tennessee More Than the Old Medicaid Program?

TennCare's costs compare favorably to what the state might have experienced under the old Medicaid program.

To obtain a true picture of how TennCare spending compares to state dollars that might have been spent under the state's Medicaid program, several adjustments are necessary:

First, long-term care expenditures should be excluded because they are not part of the TennCare waiver.

Also, about $156 million in state spending on programs outside of TennCare was folded into the TennCare program. Because this spending occurred outside of the old Medicaid program, it should probably be excluded from TennCare as well.

Finally, from 1993 (the last year of Medicaid) to 2002, Tennessee's FMAP decreased from about 68.0% to about 64.0%, resulting in about $173 million in additional state spending not attributable to the program itself.

The federal Health Care Financing Administration approves and oversees state Medicaid waiver programs. A major requirement for approval and continuation of any waiver program such as TennCare is evidence that the program is budget neutral. This means that the program cannot cost the federal government more than it would have spent if the state had retained its original Medicaid program. (19) In Tennessee's case, the program has a global federal budget over the life of the waiver that the state cannot exceed. (20) This constraint, along with Tennessee's historically conservative fiscal management, significantly lessens the probability that the program's cost will be more expensive than the state's former Medicaid program.

Is TennCare Consuming an Increasing Share of the State's Budget?

TennCare's percentage of the state budget is only about two percentage points higher than in 1993. Based upon figures from the National Association of State Budget Officers, total Tennessee Medicaid expenditures for fiscal year 2000 were about 25.0% of the state budget. (21) This was actually less than the 27.0% of total state spending represented by the Medicaid program in 1993 before the TennCare program began. The fiscal year 2003 TennCare Bureau budget, including long-term care, is about 29.0% of the total budget, two points higher than in 1993. (22) However, this increase in TennCare's share of the total budget may also be attributable as much to continuing constraints on other areas in the state's budget as to uncontrolled growth in TennCare spending. One must also remember that Tennessee is covering over 500,000 more people than it did under the Medicaid program.

Are Too Many People on TennCare?

Tennessee has a high number of recipients compared to other states. As of June 2002, about 615,000 uninsured and uninsurable persons were on TennCare. Who are the uninsured and uninsurable on TennCare? About 69.0%, or 409,510, are in families with income below 100.0% of the federal poverty level. Another 160,567, or 27.0%, are in families with income above 100.0% but below 200.0% of the poverty level. Only about 5.0% have incomes above 200.0% of the poverty level. About 185,689, or 31.0%, of all uninsured and uninsurable TennCare recipients are children. (23)

Why Not Just Remove Uninsured and Uninsurable People from Tenncare?

Removing people from TennCare may save state tax dollars but will probably not decrease overall public health care costs. It would… [END OF PREVIEW]

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