TennCare, One State's Experiment with Medicaid Expansion

TENNCARE, ONE STATE’S EXPERIMENT WITH MEDICAID EXPANSION

TennCare, one state’s experiment with Medicaid expansion

Christina Juris Bennett

Vanderbilt University Press

NASHVILLE

© 2014 by Vanderbilt University Press

Nashville, Tennessee 37235

All rights reserved

First printing 2014

This book is printed on acid-free paper.

Manufactured in the United States of America

Library of Congress Cataloging-in-Publication Data on file

LC control number 2013041120

LC classification number KFT187.H4A3 2014

Dewey class number 368.4'2009768—dc23

ISBN 978-0-8265-2002-9 (hardcover)

ISBN 978-0-8265-2003-6 (paperback)

ISBN 978-0-8265-2004-3 (ebook)

This book is dedicated to my family, who taught me about the struggles within the health care system and supported me through this process. A special dedication goes to Ella, my perpetually patient sidekick.

Contents

Preface

Introduction

1. From Medicaid to TennCare: 1965–1993

2. Implementing the Plan: Getting TennCare Running: 1994–1998

3. The Disintegration of Control: 1998–2002

4. Keeping the Program Alive: 2002–2005

5. Rebuilding the System: 2005–2010

Epilogue: 2010–Present

Conclusion

Appendix: Methods for Teaching This Case Study

Notes

Index

Acknowledgments

I COULD NOT HAVE BEGUN OR COMPLETED this publication without the tireless effort of Roger L. Conner, who has taught me about scholarly research, health care, and conflict resolution. His ever-encouraging spirit made this book possible. I also want to thank two students: Alexandra Vuxton, the Vanderbilt University Law student who helped me fill in blanks and figure out enigmatic citation forms for various sources, and Cody Wilson, the University of Oklahoma College of Public Health graduate who helped me with graphs, tables, financial analysis, and editing in the final hours. Finally, I extend a special thanks to the Cal Turner Family Foundation for timely support for the Common Ground Cases project and to Search for Common Ground for its administrative role. Thank you.

Preface

IN 1993, TENNESSEE AND OTHER STATES FACED a fiscal and policy crisis when Congress changed the law to disallow strategies by which the state had expanded its Medicaid programs at federal expense. Most states shrank eligibility rules during this period, but Tennessee embraced an innovative idea being advanced by newly elected president Bill Clinton: that it would be possible to expand the number of people covered by health insurance without increasing total expenditures for health care. Increasing coverage would eliminate the need for many expensive treatments, and managed care would squeeze out inefficiency and reduce per capita costs. From 1994 until the present, TennCare, Tennessee’s Medicaid program, operated under a federal waiver, has been a laboratory for health care reform.

Throughout the years, enrollment in TennCare grew to nearly 1.5 million citizens. However, what had begun as a collaboration of sorts in 1993 soon devolved into a polarized conflict where each stakeholder group felt that the state was asking it to sacrifice unfairly and fought hard to protect its own interests. Doctors periodically threatened to withhold services unless fees were raised; safety net hospitals laid off hundreds of workers and closed entire specialties; insurance companies went bankrupt and failed to pay their bills, blaming inadequate capitation rates; and patient advocates filed lawsuits protesting the state’s alleged failure to provide services guaranteed by the Medicaid Act.

The governor’s attempts to restrain per capita costs through regulatory reform and to increase revenues through a new state income tax were rebuffed. After 2002, the state met projected deficits by disenrolling 250,000 people and restricting available benefits.

TennCare is a paradox for students of public policy. Every major stakeholder group in the state lamented the loss of care for needy patients; each insisted that most of the cutbacks could and should have been avoided; and each still insists, with equal fervor, that the other stakeholder groups or the state officials bear all of the blame.

Author Christina J. Bennett does not choose between these competing claims. Her purpose is to allow readers to decide for themselves the lessons to be learned from this important experiment.

TennCare, One State’s Experiment with Medicaid Expansion is an intellectual feast for scholars and students who are interested in policy-oriented learning and change over very long periods of time. Teachers in particular will be delighted with a level of detail in the footnotes that is normally found only in law journals.

The most important audiences for the book are leaders, activists, intellectuals, and journalists concerned with health care policy. For them, TennCare, One State’s Experiment with Medicaid Expansion is a cautionary tale because the consequences of policy failure in this arena are not abstract. As a result of the decisions chronicled in this book, important businesses went bankrupt, whole sections of safety net hospitals were shut down, medical school education suffered irreversible losses, people with treatable illnesses became sicker and died, and thousands of doctors were forced to choose between paying their bills and practicing the healing arts.

The most important finding of Bennett’s case study is that the key players wanted TennCare to succeed. To this day, virtually all of them insist not only that the outcomes were suboptimal but also that they were avoidable. Although mendacity and ordinary greed played their parts, this is not primarily a story of right versus wrong or good versus evil. It is more like a tragedy. Despite their best efforts, a group of reasonably skillful people with mostly decent intentions could not collaborate to secure the outcomes that they wanted for themselves and for others.

As America prepares for the implementation of health care reform in 2013, the questions raised by this case are more urgent than ever. Are the participants correct that some of the failures could have been avoided? Could the players have uncovered win-win outcomes by more effective collaboration? How important was the polarization and beggar-thy-neighbor, finger-pointing advocacy? Can anything be done to encourage policy-oriented learning and foster collaboration in the future? If polarization is not inevitable in the current political context in the U.S., what would it take for the leaders to escape the trap in the next round of decision making?

Christina Juris Bennett’s book is an important resource for everyone interested in finding answers to those questions.

Roger L. Conner

Adjunct Professor of Law, Vanderbilt Law School

Introduction

IN MARCH 2010, PRESIDENT BARACK OBAMA SIGNED the Patient Protection and Affordable Care Act and the Health Care¹ and Education Reconciliation Act.² The Affordable Care Act (ACA), as the Obama Administration refers to the combination of both bills (known as ObamaCare to the act’s opponents),³ was intended to increase the number of Americans with health care insurance while reducing the growth rate of national expenditures for the delivery of health care services.⁴ Mechanically, the act imposed an individual mandate for every citizen to have some type of health care insurance or pay a fine, and it strongly induced the states to expand their Medicaid coverage limits to 133 percent of the federal poverty limit.⁵ The act also provided for preventive care, eliminated insurance denials for preexisting conditions, and contained other such consumer-friendly provisions.⁶ The policy underpinnings of this act were to:

(1) Achieve near-universal coverage and to do so through shared responsibility among government, individuals, and employers . . .

(2) Improve the fairness, quality, and affordability of health insurance coverage . . .

(3) Improve health care value, quality, and affordability while reducing wasteful spending and making the health care system more accountable to a diverse patient population . . .

(4) Strengthen primary health care access while bringing about longer-term changes in the availability of primary and preventive health care [and]

(5) Make strategic investments in the public’s health, through both an expansion of clinical preventive care and community investments.⁷

This act proved to be quite controversial, and opponents immediately sounded the alarm of individual rights being trampled by the government. Individual citizens filed lawsuits against having to pay a fine if they continued without health insurance, and state attorneys general sued on the theory that the Medicaid inducement was actually a requirement that violated federalism.⁸ These claims coalesced into one large lawsuit titled National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services.⁹ Separating out the preliminary issue of taxation versus fine, the United States Supreme Court decided on June 28, 2012 (a presidential election year), that the individual mandate was constitutional under the taxation powers but the Medicaid expansion was unconstitutional for violating federalism principles.¹⁰ (The unconstitutional mandate was permitted to be severed from the act so that the residual constitutional components remained.) Despite the Court’s ruling, many Republican leaders (including presidential nominee Mitt Romney) vowed in their campaigns to overturn the Affordable Care Act. As the election approached, the states refrained from most action related to the ACA. In November 2012, President Barack Obama was reelected, and the Affordable Care Act remained the law of the land. At this point, the states had only one month until they were to submit their blueprint for the state-based exchanges.¹¹ The Department of Health and Human Services extended the deadline until February 2013, and it has held the October 2013 deadline of enrollment in the exchanges.¹²

As our country embarks on this journey for universal coverage, many states and policy makers remain skeptical and anxious about how to implement such changes and how to do it so quickly. Turmoil continues, and even if politicians recognize the benefits of the ACA, they are unsure how to implement it, given the divided politics of the country, the scope of the task, and the risk of failure. Consequently, I recommend looking to a state that has essentially done a similar overhaul of its Medicaid system in such a short period of time: Tennessee.

In 1993, Tennessee launched a state-level health care reform initiative. TennCare, as it became known, aimed to simultaneously expand the proportion of residents with health insurance and curtail cost increases, and it was guided by principles that nearly match those that guided the ACA’s creation. Additionally, like the ACA, TennCare used corporations, rather than a single government payer, to implement the plan, and it relied on a mix of managed care, market competition, and government regulation to meet its objectives.

Tennessee should also be considered as an example because of its range of characteristics; nearly every state should be able to relate to a handful of those characteristics. To provide some context, Tennessee has a mountainous eastern section, a middle section centered by Nashville, but with vast farms around the capital city, and a rural western section rooted by Memphis and closely tied with the Mississippi River and the flat flood plains. It takes roughly nine hours to drive the diagonal of the state. Historically, East Tennessee voted against secession from the Union during the Civil War, while West Tennessee voted to secede, and these cultural ties are still present. Western Tennessee and Memphis have a strong African American community, and this racial divide has been noted throughout the TennCare story. While the state is known for its ties to country music, it is also the home to a nuclear research facility, the Great Smoky Mountains, tobacco farming, horse racing and breeding, major corporations like FedEx and Caterpillar Financial, and military bases. One of the difficulties of the decision makers in Tennessee was balancing the diversity of the constituents and their circumstances.

While many states cut back on their Medicaid enrollments from 1993 to 2001,¹³ TennCare grew from around 750,000 Medicaid enrollees in 1993 to 1.47 million enrollees at its peak in 2002,¹⁴ and Tennessee subsequently rose in the state rankings for its percentage of residents with health insurance. This explosive growth in enrollees is exactly what the ACA seeks and what the nation and various states will experience.

For many years, Tennessee was more successful at enrolling participants than at controlling costs. Each major stakeholder group (the state, the managed care organizations, the providers, and the enrollees and their advocates) pushed back against parts of the state’s strategy that adversely affected their particular interests, and they eventually dismantled the mechanisms of cost constraint. Although arguments persist over who is to blame, it is clear that total expenditures rose far beyond expectations primarily because of rising per capita costs (as opposed to other mechanisms like overloading the program with enrollees).¹⁵ Successive governors and legislative bodies chose to reduce benefits and eligibility rather than to raise taxes or reallocate funds from other priorities; that process of contraction was protracted, painful, and bitterly contested. By July 1, 2010, TennCare enrollment had fallen to 1.2 million, and some of the state’s neediest citizens were again without health insurance. Nevertheless, as Tennessee’s program has progressed through this era of uncertainty over the federal legislation, it has gained stability and firm financial footing. In fact, it has even been lauded by the Sixth Circuit as a national leader in its compliance with the Medicaid statute, and nearly half of the other states have consulted it for how to implement a Medicaid managed care program.¹⁶

GRAPH 1: TennCare Enrollee Population 1994–2010

* TennCare enrollment numbers were obtained from the TennCare FY 2010 Quarter II report.

TennCare is one of the oldest and most controversial experiments in the history of U.S. health care policy. The arguments over who is to blame for TennCare’s failures (and whether it was good idea in the first place) continue to this day. TennCare’s implementation, struggles, redefinition, and successes are instructive for other states and for the nation as we all embark on the path toward universal health care coverage.

This book tells the story of TennCare; it conveys what happened, and then it lets the reader consider those events from multiple perspectives. The history of TennCare sounds completely different when told by a TennCare administrator, a doctor, a hospital administrator, a patient advocate, an insurance company executive, or a law professor. My standard of success is that the key participants and groups will agree that the account of facts and events is fair, and that their individual perspectives have been accurately stated.

The book proceeds in chronological order through six periods:

1. From Medicaid to TennCare: 1965–1993;

2. Implementing the Plan—Getting TennCare Running: 1994–1998;

3. The Disintegration of Control: 1998–2002;

4. Keeping the Program Alive: 2002–2005;

5. Rebuilding the System: 2005–2010;

6. 2010–Present.

Within each of these sections, the organization is the same: a description of key events and facts is followed by a discussion of the events from the perspective of each major stakeholder group. I follow the last section with a brief Epilogue, which brings the story to the current day. Then, in the Conclusion, I consider what policy makers, doctors, patients, and insurance companies, among others, might learn from the TennCare experience, as they continue to work and live within the TennCare program, and I suggest how TennCare’s experiences can be instructional to other states and the nation as the ACA is implemented.

To be clear, I do not have a one-shot solution, and in fact, my classification of health care as a wicked problem, which I discuss in the Conclusion, means, by definition, that there is no one-shot solution. As Justice Ginsburg wrote, health care is unlike other areas of commerce; it is unique.¹⁷ While she was referring to the ways that everyone ends up entering the health care market and that people receive health care regardless of their ability to pay, the idea of health care services being unique is just as applicable to its incredible complexity. Throughout this book, you will see evidence of how the task of providing health care programs for the masses is complicated and requires commitment to perpetual re-solving of issues. Literally, solving one problem only led to more problems, and nearly none of them could be solved with one solution.

As with any publication, there are limits to what information I have provided. The stakeholders are still actively fighting these fights, and they are hesitant to provide information that could benefit those opposing them or hurt themselves, depending on how the information was portrayed. As the readers will see, I came into this project with almost none of my own information, and instead, I relied entirely on printed materials. Thus, what has been included has been vetted by stakeholders in the sense that they had the opportunity to control what they published or to respond to what was published about them by others. I have purposely included extensive references and additional information in the endnotes to promote the reader’s ability to consider my sources and to provide a fuller explanation of specific events. Moreover, many of the difficult-to-find primary documents are available on my website christina-bennett.squarespace.com, and I encourage you to familiarize yourself with the documents. This archive will continue to be updated as I gain access to postable materials. I also limited my focus to the four stakeholding groups of the state: the managed care organizations, the providers, and the enrollees, and their advocates because of the robust nature of information available about those groups and their primary roles within the policy making. Even when limiting myself to these four stakeholding groups, I was still challenged to provide truly parallel story lines through the eras and from stakeholding group to stakeholding group. There were certainly other groups involved, and they formed coalitions, but their roles were not primary, and information about their participation (even when I met with their leaders) was scant at best.

1

From Medicaid to TennCare: 1965–1993

THE EVENTS

IN 1935, PRESIDENT FRANKLIN D. ROOSEVELT SIGNED the Social Security Act (SSA) into effect as part of the New Deal.¹ As the name implies, the act is best known for Social Security, America’s earliest and best-known experiment with social insurance,² but it also changed the structure of government assistance to persons in need in fundamental ways.

Prior to 1935, assistance for needy Americans was a local responsibility.³ Local and state governments provided most of the money; local officials distributed most of it through general assistance programs, which gave them wide discretion over who to help and how much to provide.⁴ Social Security created a political division between national universal entitlement programs where beneficiaries earned their coverage through years of payroll deductions and welfare-based systems where the recipients received benefits without having contributed. This division and its consequential class system have continued through today in the form of benefits as rights versus privileges.

In a dynamic that would be repeated many times in succeeding years, the availability of federal matching grants helped influence state and local policy choices. Between 1940 and 1966 the number of individuals receiving cash payments under general assistance declined from four million to less than 600,000, while the number receiving categorical assistance rose from three million to over seven million persons.⁵

In 1965, Congress again expanded federal responsibility for social welfare, this time for health care, and it created two very different systems: Medicare and Medicaid.⁶ Medicare, for Social Security beneficiaries, was based on the social insurance model: all American workers were placed in a single risk pool, paid premiums into a fund during their working years in the form of payroll taxes, and became entitled to receive benefits from the fund after age sixty-five.⁷ This design made Medicare an entitlement, and its sustainability did not depend on the annual budget process of collecting taxes and determining appropriations.⁸

By contrast, Medicaid was designed as a program of categorical assistance paid by a mix of state appropriations and federal matching funds operated under federal guidelines.⁹ Medicaid was created at the hest of southern states (whose agricultural workers did not qualify for Social Security, and thus would also be eliminated from Medicare eligibility) as a way to provide for their neediest citizens.¹⁰ At the time Medicaid was adopted, it was seen as a consolidation of the health care component of existing programs, such as Aid to Families with Dependent Children (AFDC), where cash assistance and medical care were being provided to the same populations from different funding sources.¹¹ States were permitted to create their own programs, but the federal laws set the floor of provisions.¹² What evolved was a complex combination of state and federal laws and funds mixing to serve states’ poorest, elderly, and disabled citizens.¹³ As each state contributed money to its Medicaid pool, the federal government would match that state’s contributions with a specific matching rate (with the federal government paying at least as much as the state paying) so long as the basic requirements were met.¹⁴ For example, in many states, for every $1 they spent, the federal government would give them $2 for the Medicaid program.¹⁵ Some states quickly modified their existing programs to shift costs for their neediest citizens to the federal government, while others created new ones to earn federal matching funds. Within five years, congressional leaders declared that a crisis of uncontrolled health care cost increases had developed.¹⁶

The roots of this crisis were more complicated, however, than states trying to get the federal government to pay for their programs. First, each state’s federal representatives had vested interests to provide as much as possible in the way of federally paid benefits for their constituents back home. The cost of coverage expansions were minimal to states (20 to 50 cents on the dollar), making them easy to support. Thus, the state and the federal representatives were both pushing for Medicaid expansion. In addition, some federal expansion programs were mandatory (or operationally so), which continued to add to Medicaid enrollees. Consider one example: in 1967, Congress created the Early Periodic Screening, Diagnosis, and Treatment (EPSDT) program to provide medical care for poor children.¹⁷ The program developed in reaction to the documented, widespread, and preventable mental and physical conditions among poor children, from preschool children to young draftees.¹⁸ If a state had previously accepted Medicaid matching funds, it was required to include EPSDT services or risk losing all of the Medicaid funds on which it had come to rely.¹⁹ Adding medical coverage for children up to age twenty-one was politically popular; federal and state costs for the Medicaid program understandably grew once the program was adopted.²⁰

The resulting pattern has been that Congress periodically expands the mandatory benefits and states periodically take advantage of the optional programs to expand the amount of federal money flowing to their states. Actual costs frequently exceeded projections at the state level, the federal level, or both, and political conflict ensued over who would be forced to pay for the unexpected costs or take political responsibility for shrinking benefits.²¹

In addition to the state-federal dynamic, the Medicaid system also fostered new advocacy coalitions between various interest groups. Suddenly, the physicians and hospitals (both providers) had a reason to join forces to lobby for more funding and more practice autonomy. When managed care companies were introduced in the 1990s, insurance companies banded together to keep provider payment rates down and increase profits. Patients wanted additional benefits with reduced costs, and, consequently, they opposed the restrictions proposed by both the providers and the insurance companies.²² Looking closer, though, even within a group like the providers (which might present a cohesive front on a larger or federal scale), factions such as not-for-profit versus for-profit or rural versus urban developed on a smaller or local scale. And, of course, all these individual groups interacted with the state and federal governments. Medicaid transformed a local, nonstandardized process for delivering charity care into a national program that increased the number of people receiving free services and provided significant incentives for individuals and groups to form coalitions to achieve specific policy outcomes.

Tennessee’s experience is illustrative of this coalition-forming process in order to solve major health care problems. Looking specifically at the state-federal dyad, when Congress adopted Medicaid in 1965, it limited eligibility to the required categories, the aged, the blind, the disabled, and families with dependent children.²³ With the addition of some optional categories, such as medically needy (members with characteristics of one of the broad Medicaid categories, such as aged, disabled, or families with children but who do not meet the income requirements for assistance),²⁴ Tennessee’s enrollment had reached 410,525 in 1988.²⁵ In 1990, Congress required the states to cover all children in low-income families as a condition of receiving Medicaid funds,²⁶ and Tennessee obliged; by 1993, Tennessee’s Medicaid enrollment was 758,574.²⁷ Total Medicaid expenditures in Tennessee rose from less than $1 billion in FY 1987–1988 to over $2.8 billion in FY 1992–1993.²⁸ Putting those numbers into a statewide economic context, in FY 1989–1990, Tennessee spent 41.7 percent of its total budget on health and social services, and its 4.8 million citizens averaged a per capita income of $15,900.²⁹ By 1992, the state was spending 50.5 percent of its state budget on health and social services, the population had grown only by about 200,000, and the per capita income was $17,200.³⁰

Tennessee, along with other states, developed strategies to maximize federal matching grants.³¹ One strategy was to take people whose medical expenses were already the state’s responsibilities (like foster children) and make them Medicaid-eligible.³² Another was to impose new taxes on health care providers, count the revenue toward the state’s Medicaid fund, which the federal fund program would match, and then return the money received as revenues back to the providers via elevated preferred provider reimbursements.³³ Yet another strategy to maximize federal matching money was encouraging providers to donate to the state’s Medicaid fund.³⁴ Again, because the state had the power to adjust the reimbursement rates for providers, it could then return the donated money to the hospital through elevated reimbursements rates after receiving expanded federal matching funds based on the donation.³⁵ Thus, providers and state officials were operating as a cohesive coalition against the federal government to maximize health coverage for citizens and increase federal dollars without raising taxes on its residents.

Looking across the country, in the decades after Medicaid was created, combined tax collections of state governments grew rapidly, and states invested a part of that revenue growth in Medicaid.³⁶ From the states’ perspective, they were responding to congressional incentives; but, from the perspective of fiscally conservative federal lawmakers, aggressive states were achiev[ing] social welfare objectives by externalizing at least half the cost to federal taxpayers.³⁷

Facing voter resistance to expanding federal deficits, congressional members began calling for action to restore the built-in fiscal and political-process constraints that had always been part of the cooperative federalism Medicaid philosophy.³⁸ Throughout the 1980s, state Medicaid program inflation had outpaced the medical inflation rate, which was already higher than the general rate of inflation.³⁹ Consequently, in 1991, a Democratically controlled House and Senate