Tenn. Medicaid expansion plan includes vouchers, deal with hospitals

(Story updated at 4:30 p.m. ET.)

Republican Tennessee Gov. Bill Haslam has announced his alternative pathway to expand Medicaid in the state with a unique voucher program for low-income employed individuals. He also announced a surprising partnership with hospitals to help fund the expansion.

The initiative, known as the Insure Tennessee plan, is a two-year pilot program to provide healthcare coverage to about 200,000 low-income, uninsured adults who are eligible for Medicaid expansion under the Patient Protection and Affordable Care Act. The plan must still be approved by the state Legislature and the CMS before going into effect.

In a twist that makes this expansion plan different from those in other states, Tennessee hospitals have agreed to cover the state's portion of the cost when the federal match decreases below 100% after 2016. If the federal match were to ever drop below 90%, Insure Tennessee will automatically end, according to state proposal documents.

“The benefit we saw from doing this is the investment would likely come back sevenfold from what we would save from reducing our uninsured costs,” Craig Becker, president of the Tennessee Hospital Association.

Tennessee hospitals provided more than $2.4 billion in uncompensated care in 2012, up from $765 million in 2001, according to the association. Presumably what hospitals contribute to the new plan will produce a net savings for hospitals

He said his members agree with the state that the hospitals should not continue to be covering the difference once the federal match drops below 90%. “There are limits to what we can do,” Becker said.

If Haslam's plan is enacted, LifePoint Hospitals stands to benefit the most as it has the largest presence in the state, with 14.1% of its beds in Tennessee, said JP Morgan Analyst Justin Lake. Other beneficiaries will include Community Health Systems, which has 9% of its bed in the state, and HCA, which has 5.9% of its beds there.

The plan gives an employed individual making under 138% of the federal poverty level the option to volunteer to receive a health insurance voucher to help participate in an employer's health insurance plan. The voucher can be used to pay for premiums and other out-of-pocket expenses associated with participation in an individual's employer-sponsored private market plan.

That voucher provision is “the one issue that gives me pause a bit,” said Joan Alker, executive director of the Georgetown Center for Children and Families, a research center focusing on health insurance issues for families and children. “The question is when someone chooses to go into employer-sponsored coverage, will their Medicaid benefits and cost sharing protections be protected?”

Patient advocate groups such as Families USA and the Tennessee Justice Center tentatively expressed support for the move while they await further details about the expansion proposal.

For the unemployed, or those who decline the voucher program, a standard managed Medicaid plan would be available. Out of pocket cost for this plan could be reduced by participating in Healthy Incentives for Tennesseans, which would essentially deposit funds in health savings accounts that could be used to offset costs. The funds would come as a reward for healthy behaviors, such as going to a physician for an annual health assessment. Haslam said premiums would be just for those above 100% of the federal poverty line.

It's unclear if state lawmakers will be onboard with the proposal. The state's Medicaid director has said in the past that lawmaker approval will be the biggest hurdle to expansion as the ghost of the state's Medicaid troubles in the 1990s has made it difficult for legislator's to favor another expansion effort.

In 1994, Tennessee restructured its Medicaid program and enrolled its entire Medicaid population in managed-care plans. It also extended coverage to all uninsured and uninsurable citizens regardless of income. Costs ballooned to unsustainable levels, quality of care was uneven, and the state ultimately had to dramatically reducing eligibility.

“That memory is still very fresh and we need to help people to understand why this time is different,” Gordon said at a Kaiser Family Foundation event in October.

To date, 27 states and the District of Columbia have expanded Medicaid to individuals up to 138% of the federal poverty level. The federal government covers 100% of the cost through 2016 and ultimately drops to 90% after that.

Follow Virgil Dickson on Twitter: @MHVDickson