SUSAN DENTZER: Diane, please give us an overview of how TennCare was perceived when it first began in 1994.
DIANE ROWLAND: TennCare was bold, it was comprehensive, it looked at the whole low-income population and was seen by many as a model for how we might provide coverage to the low-income population, especially by bringing in childless adults who historically have never been eligible for Medicaid. It was also bold in that it proposed using managed care as a cost containment vehicle to be able to achieve savings and enroll people and get them access to care.
So it was comprehensive care for a broad array of low-income people and really a very fundamental part of addressing Tennessee's problem of the uninsured.
SUSAN DENTZER: And to also put this into context with what was going on nationally at the time, because of course we were on the throws of getting the full version of the Clinton health plan. TennCare had features in common with what the Clintons proposed. Let's talk a bit about that.
DIANE ROWLAND: Well, TennCare really looked like what could become the low-income component of a national health program. The Clinton health plan wa talking about enrolling people in managed care, achieving savings that could make health care more affordable through the kinds of controls that managed care can impose, and for the low-income population, TennCare was also talking about linking patients up with providers through health plans.
So it was a way of also improving access to care. So, really, in 1993-94, when TennCare came into being, we were dealing with rapidly-rising health care costs that were a concern to everyone, and we were dealing with a growing uninsured population and TennCare was a way of linking managed care as a cost containment strategy along with managed care as in improving access for low-income people, for giving them health coverage and organized plans.
So it really was two of the major elements of what national health insurance, universal health coverage in the Clinton reform plans would have been all about.
Since then of course we've gone down a road where most states have implemented managed care. They've achieved now most of the savings that managed care can offer, so that's no longer the panacea for how do we cover more people and provide care more cost effectively, because we've taken those savings.
So now we see rising health care costs again on the horizon and no magic solution out there to solve it.
We've also seen of course a lot of pressure in the employer sector with rising health care costs, more people losing employer coverage. So programs like TennCare have become even more important as we've seen the drop-off in what health insurance we can expect from the employers in the state of Tennessee and other states.
SUSAN DENTZER: Would you say there was a lot of excitement around TennCare at its outset?
DIANE ROWLAND: I think TennCare always had a lot of excitement and also an edge of controversy. One of the issues with TennCare as that of course it was a time when the state had been doing a lot of very creative financing that helped them generate additional federal funds and TennCare was a way of the state of Tennessee retaining some of the funds that Congress would later clamp down on for other states and build them into their program base.
So in that sense, the financing of TennCare always had an edge of controversy to it, but the goal of TennCare was really an applauded one.
And in fact with TennCare Tennessee became one of the states with the most comprehensive coverage of the low-income population through Medicaid anywhere in the nation.
SUSAN DENTZER: Let's zero in on this question of federal funding. What was it in for the Federal Government, in effect, to give the state more money?
DIANE ROWLAND: Well, at the time TennCare was enacted, the Federal Government was struggling with many states using the federal matching funds for Medicaid in fairly creative ways, to have the Federal Government pick up a greater share of the cost of their Medicaid program.
What was it in for the Federal Government and TennCare was a way to cap the amount of money that the Federal Government was putting in, but it did so by being more generous in terms of how many people it would cover.
When states apply for waivers to change the rules on what Medicaid will pay for in the state, they usually need to do so in a way that is, quote, budget neutral, that doesn't cost the Federal Government any more money.
But in the TennCare situation, the Federal Government allowed the state to estimate what it might have spent in the absence of the waiver anyway, and to take a lot, get some credits that it could apply to the cost of TennCare, thus really allowing the state to expand coverage with a lot more federal assistance than it would have gotten under just the straight federal matching funds. What I think TennCare shows is that states have always had the goal of trying to improve coverage for their citizens, trying to address the uninsured, but most states can only do that with the Federal Government as a strong partner.
What TennCare shows and what other states are seeing is that even though states have a strong desire to extend coverage to more of their uninsured citizens, they really need federal assistance to do that and to maintain that, and what has happened to TennCare is that in the early days, there was an infusion of federal funds that helped make TennCare a reality.
What has happened since then is those funds have become tighter and tighter and that what you see now is that the state is struggling to maintain a program without that additional boost that the federal funds gave the program in the early years.
Second, what we really see around the country is that we have a revenue crisis between the Federal Government and the states in terms of who's paying for what.
During the last economic downturn, as states were really looking at very slow revenue growth and Medicaid putting extreme pressure on their state budgets, the Federal Government came in and gave an additional financing assistance to the states to help them to the tune of $10 billion, meet the rising costs.
That fiscal assistance has now ended, most of the states have seen some revenue growth in their state budgets but not enough to keep pace with the rising cost of health care and of Medicaid in their states.
So we've got a fiscal crunch at the state level and now we're anticipating that the Federal Government, instead of coming in and helping states through this fiscal crunch, is itself looking at its own rising deficit and may well be proposing cutbacks, not expansions of coverage through its budget that we'll see in February. Or through its next budget or whatever you want to say, Susan.
SUSAN DENTZER: Overall, how would you say the TennCare experiment has gone?
DIANE ROWLAND: The TennCare experiment has had a lot of bumps in the road, as you might expect in anything that has been as broad-scaled as it tried to be, and it's been around for 11 years. In that time we've seen struggles to make sure that some of the public hospitals that were providing care of the indigent before TennCare could survive the transition as more people got health insurance coverage.
We've seen fiscal pressures on the program. We've seen struggles with which managed care plans would take care of the TennCare population.
So it's really been a real experiment in how do you extend coverage, how do you use managed care effectively, and how do you control costs,and as with any experiment, it really has not had the smoothest road but it's been a work in progress that we've all been watching now for some 11 years, and now I guess we're seeing the next turn in the TennCare tale.
SUSAN DENTZER: We have now a unique situation in that we have a Democratic governor, in a sense, setting a ceiling on TennCare spending as a share, or proposing to set a ceiling on TennCare spending as a share of the state revenues, 26 percent, in effect block-granting the state's contribution to Medicaid, saying that in order to achieve that he has to cut 300,000 people from the rolls.
Is this sort of an extraordinary turn of events?
DIANE ROWLAND: I think one really needs to look at the size and the scope of what the governor is proposing. 320,000 people in a state being removed from the rolls and basically converted back to being uninsured. It's really a substantial hit, not only on the population that's being cut, but on the providers of care in the state and on the very institutions that try and provide health care services to everyone, including emergency rooms and other parts of the provider community.
What I think we need to keep in mind is that that number--in 18 states there are fewer than 320,000 Medicaid enrollees altogether. So this is really the equivalent of losing as many people as 18 states now cover on their own programs.
Or another way of looking at it is if Montana, North Dakota, South Dakota and Wyoming, all dropped their Medicaid program altogether, they would still be dropping fewer people than the one state of Tennessee.
So we're talking about a very large change in coverage. We're talking about that change partly because Tennessee was comprehensive and moved to cover so many people. So yes, the governor is correct that they've broadened their base so that this really is a generous program that they're scaling back, and that compares to other states with more limited programs.
But it also is a major change in how Medicaid works, and I think that's the piece that can't be overlooked. That this is managing Medicaid by the budget instead of managing Medicaid by the population to be served and the benefits to be provided to them.
Most states, when they look at cutting back or trimming their Medicaid spending, look at eliminating some benefits, maybe dropping a few eligibility groups, but they don't do it with a fixed target of how much money they'll spend in any year. They do it with an attempt to try and scale back the program in different dimensions, so that they have a more predictable growth rate.
What this governor is proposing is to say I'll make, and I want permission from the Federal Government to make any changes that I need to keep within that budget target.
What that means is that we can't even be sure today what the cuts in the future will be. While he's saying that today we might see a drop of 320,000 people, in the future, if that still doesn't hit his budget target, there may be other changes in the scope of benefits, and coverage of children, in any other part of the program.
I think the other thing that is important to note about TennCare is that TennCare is the way health insurance coverage is provided to the low-income citizens of Tennessee but it is not the full Medicaid program, that Medicaid also provides health and long-term care services for the aged and some people with disabilities. That really needs to be looked at as well.
And that's the area where many other states are trying to trim their budget and not, not really on the horizon right now from what I can see of Tennessee.
I mean, as you talk to other governors, what I think most of the governors are facing is how do they pay for the coverage of people who are dually eligible for Medicare and Medicaid, accounting now for some 42 percent of all Medicaid spending. So we're seeing a very different kind of cutback going on in other states where they're trying to trim their long-term care spending at the same time as they're trying to protect their insurance coverage so that we don't contribute to the uninsured rolls.
Tennessee is going to be taking direct aim at people who undoubtedly will be on the uninsured rolls if they're cut from TennCare.
SUSAN DENTZER: How much is what Tennessee is facing in TennCare and proposing to do about TennCare reflects what other states are going through as well, and how much of it is a unique situation, unique with respect to the way things have played out in Tennessee?
DIANE ROWLAND: Well, what TennCare shows you, as well as experience in other states, is that the Medicaid program is one in which states have some populations they're required to cover for certain benefits, most specifically children and pregnant women, and then it has other services and populations that it can cover at its option and still receive federal matching funds to help pay for the cost.
TennCare was a broadening of the eligibility rules to allow many more people to qualify, who were low income, for health insurance coverage and still receive federal matching payments.
Scaling back on eligibility for TennCare is something that is at the state's option. There's no requirement from the Federal Government that childless adults and people above the poverty level be covered. The requirements the Federal Government puts on states mostly relate to coverage of children.
Most states are really looking at how to scale back provider payments, scale back what they're doing in terms of some of the benefits they provide to adults, and some of the adult eligibility category is to try and save money, but they're really not doing anything at the size and scope of what TennCare is proposing.
In part, that's because some of the states that don't have programs that are anywhere near as broad as TennCare, so that's why some of this is relatively unique to Tennessee.
But, also, they're not really taking such a multifaceted approach to cutting back on services and very few are talking about trying to set a target that they would manage the program by in state budgets.
So I think that the cap on, on state spending is really a new twist to the TennCare experience.
However, I think it's also important to recognize that Medicaid operates as an appropriated program in all states, so it's not as if Medicaid is a wildly out-of-control open-ended spending program.
In fact we know from research that's just come our recently, Medicaid spending on a per capita basis for insurance coverage is lower than what you can get from private insurance. States have been doing a really good job of managing the program. They hold down provider payment rates, they hold down managed care rates, so that it's not that the program is out of control, it just serves a lot of people and the costs that are rising in Medicaid, in Tennessee and other states, reflect the fact that employer-based coverage is eroding and health care costs are rising, and so we're really paying more to try and at least maintain coverage for the population, even though we're making very little progress in addressing the uninsured.
SUSAN DENTZER: TennCare, as has the entire state of Tennessee, has faced an extraordinary problem of very, very heavy pharmaceutical drug utilization and very, very rapidly rising costs attendant that, again not unique to TennCare. It seems to be pervasive throughout the state of Tennessee.
How much have other states experienced a similar problem?
DIANE ROWLAND: Well, the cost of pharmaceuticals to the Medicaid program is a universal problem among the states. Virtually every state is struggling with how can they reduce what they're spending on pharmaceuticals.
Most of the states hoped that when the Medicare drug law went into effect they would be relieved of the cost for some of the dual eligibles who have both Medicare and Medicaid coverage for their drug expenditures, but instead the states are facing a payback to the Federal Government for Medicare beneficiaries who are now going to be shifted from Medicaid to Medicare.
So states are really looking at prescription drugs as the area that they need to contain costs, they're trying to do a lot with utilization review, with group purchasing. So that's an area where I think all states are facing a quandary of how do we contain these drugs when we know that the population we're serving is often sicker and more in need of medications than some other parts of our health care system.
I think the other, the other issue that we've seen with states is that all states are facing a struggle between their slowly-growing state revenues and the rapidly rising cost of health care and the pressure that places on state budgets for Medicaid spending.
But what we also know is that many of the states don't have the revenue base that they need to meet some of their obligations today, and Tennessee among them is a state without an income tax. The former governor, preceding the current governor, tried to enact an income tax that didn't work very well, and so, in part, you have a problem of a state that has a limited revenue base and we're in an era in which raising taxes is not very popular.
Some states are trying to address some of their problems with tobacco taxes and sin taxes but I don't know that that's been considered as part of the governor's strategy for filling his budget holes. Instead, he's really looking at reducing what the state spends.
SUSAN DENTZER: During the confirmation hearings for Governor Leavitt as head of HHS, the subject of Medicaid came up quite a bit and he seemed to be sketching some kind of a cap for the program.
Perhaps not exactly along the lines of what the administration floated two years ago but--and perhaps not along those lines in the respect that there would be no additional money for states at all.
What do--what does it appear, now, that the administration is likely to propose to, to the states, and how are the governors likely to respond to that when they come into town for the National Governors Association meeting in a few weeks?
DIANE ROWLAND: We're hearing a lot of discussion, these days, about the upcoming federal budget and the fact that with a rising deficit they're going to be looking at various areas to reduce federal spending, among them Medicaid, given the size of the program in the federal budget.
I think that we've been hearing a lot of discussion about the rising federal deficit and the impact that that will have on the upcoming budget to be proposed by the president.
The likelihood, according to most of the inside Hill experts, is that we'll see substantial cuts proposed in the Medicaid program.
The governors have already gone on record saying that this program is unsustainable without additional federal assistance, that they need more federal dollars, not fewer federal dollars, to help meet the growing needs of the dual-eligible population, those who are eligible for both Medicaid and Medicare, the aged, and people with disabilities.
So I think we're in for a battle between the Federal Government and the states over who pays the bill for the sickest and the most vulnerable among us, the oldest and the frailest, and I think that battle is going to be one that's going to begin with the first salvo being the president's budget.
SUSAN DENTZER: And do we have much of an inkling at this point, in what form these cuts would come? A hard cap? Some have talked about an entitlement cap, overall, from which Social Security and Medicare would be exempted, leaving therefore primarily Medicaid to be affected.
DIANE ROWLAND: Over its 40 years history, Medicaid has been proposed for restructuring many times. Sometimes it's been proposed that the program be split in two with acute care and medical care on the one side and the long-term care responsibilities of the program on the other side.
There have been proposals to swap responsibilities where the states assume full cost of caring for the long-term care needs and the Federal Government takes over the acute care, and then there's been reverse proposals.
What the most current round of discussions have always been about is capping the level of federal expenditures, whether that's on a per person basis with a fixed growth rate or on a broader block grant approach or allotment approach where the Federal Government says this is how much we'll put into each state. For the Medicaid programs, states can spend up to that amount and absorb any costs over that.
One of the models that people talk about for reforming Medicaid has been the state children's health insurance program which is in fact a modified block grant where the states are given an allotment, they have to put up matching funds to draw down the federal funds but they're given a lot more flexibility than they have in Medicaid.
That approach works quite well for the children's coverage but one wonders about how one would apply that more broadly to all the diverse elements of the Medicaid program, where you have not only responsibility for health insurance coverage, which for children is a pretty low cost and predictable expense, but the even more complex expenditures for health and long-term care for people with severe disabilities, for those with HIV/AIDS, for the elderly who need wrap-around services and long-term care coverage beyond what Medicare offers.
So there have been a lot of proposals put on the table, most of them involve more decision about how much money will be spent on the program, and not so much about how the program should be structured in terms of coverage offered or population served.
SUSAN DENTZER: Do you feel comfortable in making any kind of a prediction at this point about how the TennCare situation would play out, either with respect to approving this additional waiver amendment or the actual coverage cuts taking place or the effect on the population?
DIANE ROWLAND: We've been watching Tennessee and TennCare for 11 years and I think we'll continue to be watching Tennessee and TennCare to see what happens with this waiver proposal. Will it be approved by the Federal Government? Will it be negotiated in some other way? Will it lead to other states seeing this as a model for where they might need to go in their own coverage, in their own struggles to meet their budgetary requirements?
And certainly we will want to watch and see what happens in Tennessee itself, what will happen to people who have TennCare today, who lose coverage. Will they become uninsured? Will it take a severe health impact on, on the state's residents?
Will we see more people showing up at emergency rooms and putting a further drain on the health care system?
We know when we--we know when people lose coverage from public programs, who are very low income, they often have no other options but then to turn to try and seek care from the system as an uncompensated care patient, or to try to postpone care until they feel they can afford it.
We know that takes a severe toll on not only their health but on the health and the productivity of the state and the country. So will we see a growth in our uninsured rate? Will we see more health consequences from lack of insurance if 320,000 people in Tennessee, or more, lose their coverage?
Yes, I think we will, but obviously it'll be the TennCare story continued, and we'll probably be revisiting it, not this year, next year, but for years to come, because I think Tennessee remains a state that's a model for where we go and perhaps now where we shouldn't go.
SUSAN DENTZER: Finally, please give us your best description of Medicaid.
DIANE ROWLAND: Medicaid is the health and long-term care program that provides assistance to the aged, the blind, the disabled, pregnant women and children, and some adults and low-income families. It's a multifaceted program. It's a long-term care provider to those who need it, but for most of the beneficiaries, it's the source of health insurance coverage.
So that Medicaid provides health insurance coverage, access to physician services, hospital care for low-income children, their parents, and pregnant women.
SUSAN DENTZER: And the financing?
DIANE ROWLAND: Medicaid is a joint partnership between the Federal Government and the states where the Federal Government provides matching funds to the states to cover the cost the states incur providing health and long-term care services to the low-income population.
There are required populations like children and pregnant women at certain income levels, that the Federal Government requires the states to cover. Or let's do it again.
The Federal Government requires states to cover low-income children and some pregnant women with the Medicaid program and then gives the state options to provide broader coverage to additional adults and children, and still provides federal matching funds to support their care.
Over time, as Medicaid has risen to provide coverage to more and more of our uninsured low-income families, and to support the health and long-term care needs of the aged and disabled, it has grown in size to be now a program that exceeds Medicare in spending and in the number of beneficiaries. Or another way.
Medicaid is now our largest health care program, providing health and long-term care assistance to over 50 million Americans, at a cost that equals that of our Medicare program, which covers only around 40 million Americans.
What we see from the state experiences, that states really exact a very good price for the care they get for their Medicaid population. The Medicaid program spending is not out of control. It is just meeting a growing demand for health insurance coverage from low-income people who especially in hard times lose their employer base coverage.
Many call Medicaid a "platinum" or a "Cadillac program." What Medicaid is is it's a fairly lean program that covers a lot of people who are very sick with very substantial health needs.
It provides a comprehensive benefit to those people in terms of the coverage it offers, and limited cost sharing in recognition of their low incomes, and of their low health status.
In fact the people who use the most benefits on Medicaid are people with severe disabilities, the mentally retarded, the mentally ill, and many of those individuals require substantial amounts of medication.
So the comprehensiveness of the program is to meet the diverse needs of the poorest and the sickest in our society but it does so in a very cost-effective way. Medicaid is not a program out of control on spending. It just spends a lot because it covers a lot of people with very large health need.