Tennessee Can Expand Medicaid or Forego $1 Billion

The Affordable Care Act, or "Obamacare," has put Tennessee in a pickle: choose to expand and provide Medicaid to an additional 180,000 previously uninsured people or lose $1 billion of new federal funding over six years (which in part comes from Tennessee taxpayers).

As doctors, we feel a deep moral obligation toward the uninsured and the poor who would benefit the most from the Medicaid expansion. Yet, we are also deeply concerned that the increased state government expenditure may implode the existing Medicaid system, which is known as TennCare in Tennessee, and the entire state budget. How do we reconcile the moral with the financial tension in making a decision about Medicaid expansion for Tennessee?

Medicaid expansion, a major provision in the new health law , extends health coverage to all individuals with incomes below 138 percent of the poverty level ($30,843 for a family of four). The provision includes significant federal support.

Medicaid expansion will vary dramatically among states, depending on the number of low-income people who currently lack insurance. For example, Massachusetts would see an increase of less than 10 percent in its Medicaid population compared to 45 percent in Texas.

Let's look at the impact of Medicaid expansion on Tennessee: our patients, our state budget, and our providers (doctors and hospitals).

Patients

As doctors we know that patients without health insurance die sooner. Sure, all patients can go to an emergency department, but the uninsured wait longer to get a breast lump checked or delay in getting antibiotics for a cough and fever which turns into pneumonia. The uninsured also skip preventive care, often clogging the emergency room with non-urgent needs, and increasing the cost and wait times for everyone.

Expanding Medicaid is a major strategy in the new health reform law to reduce the number of uninsured. But does expanding Medicaid help people and save lives? A national study shows that states that chose to expand Medicaid even before the new health law had a 21 percent reduction in delay of care and 6 percent lower death rate, compared to other states. In their research, Cyril Chang, professor of economics at University of Memphis, and David Mirvis, adjunct professor in public health at University of Tennessee, estimated that TennCare expansion would save 853 lives each year, about the same as the number killed on our roadways.

With Medicaid expansion, personal bankruptcies would be reduced. At present, nearly 60 percent of personal bankruptcies are related to medical bills (three quarters of them occurring among those who were uninsured at some time over the past two years before filing).

But there may be a downside to Medicaid expansion. Will expanded health coverage to the poor make them more dependent on government handouts? Will the poor be less motivated to find a job and obtain private insurance? Anecdotally, we know of patients with minor back pain who go doctor shopping to find one who will sign their disability papers and enroll them in Medicaid. And even after the ACA is fully implemented the problem of the uninsured will remain. The Kaiser Family Foundation estimates nearly half a million Tennesseans will be without health insurance.

State Budget

Each year Tennessee expends one-third of the state's budget, $9 billion, on Medicaid ($6 billion comes from federal funding and $3 billion from state funding). How will this change?

Under the ACA, no matter what, more Tennesseans will be added to Medicaid through two effects. First, the "crowd-out effect": families with low income and on private insurance will opt for Medicaid due to lower costs. Second, the "woodwork effect": those who are presently uninsured but haven't enrolled in Medicaid will do so due to the health insurance mandate. Collectively, this will add 60,000 people to Medicaid at the cost of nearly $1 billion to the state from 2014-19, according to the state budget report. All these expenditures are unavoidable and required under the new law.

What is optional is the Medicaid expansion, providing insurance to those who are uninsured presently and below 138 percent of poverty level. According to the state budget report, between 2014-19 this will add 180,000 people to TennCare at a cost of $200 million of state money.

This state spending means there is less money for education, transportation and innovation; and Tennessee must balance its budget each year. This spending also comes at a terrible time of slow growth, high unemployment, and fiscal cliff negotiations where lawmakers are trying to find ways to reduce new spending, especially on entitlements.

As the economy continues to struggle, state lawmakers must ask themselves if they believe their economies will grow fast enough to cover this extra expenditure.

Providers

Doctors and hospitals provide $4 billion in free care each year to patients who lack insurance.

Overall doctors will fare better, especially primary care doctors who will be compensated by Medicaid under the new law at the higher Medicare payment rates. Medicaid expansion would save Tennessee almost $500 million over 10 years in uncompensated care, according to the Kaiser Family Foundation.

Hospitals in part are compensated by Medicaid and Medicare "disproportionate share funds" for the free care they provide. The new law, however, reduces these funds by 25 to 50 percent beginning in 2014. Without the Medicaid expansion, "a number of Tennessee hospitals will have to close," said Craig Becker, president of the Tennessee Hospital Association. Presently one-third of Tennessee's hospitals operate at a loss.

The Medicaid expansion will have substantial positive economic impact on the state's economy. The Kaiser Family Foundation and the Urban Institute estimate that states will receive $9 from Washington for every $1 they spend on Medicaid. Each new dollar in the state economy generates $2.60 in overall economic value and additional tax revenues as the money circulates through the state economy. Researchers at the University of Memphis estimate that this in turn would create 8,000 jobs in Tennessee by 2019 and $3 billion in additional economic value to Tennessee.

But for many state legislatures it's a trust issue. Will the federal government continue to meet its legal obligations over the next 10 years to heavily subsidize this expanded Medicaid population at a time they are pledging to cut overall entitlements and reduce the massive national debt?

Even though we are conflicted, overall we believe Medicaid expansion will be beneficial for Tennesseans and the state government. One option may be to take a "free trial" of Medicaid expansion for three years and see how the health care landscape changes for patients and the state budget. But it may be difficult, even unfair, to sign up 180,000 Tennesseans for health insurance only to kick them off a few years later.

There is no simple answer to the question of Medicaid expansion. While providing health insurance for more Tennesseans puts a strain on the state budget, it also builds a healthier workforce, improves worker productivity and expands investments in our local economy. We believe, then, the benefits outweigh the risks.

Manoj Jain in a physician and his work also appears in The Washington Post.

William Frist is a heart transplant surgeon and former U.S. Senate Majority Leader.